30 May 2024
Business owners with Bounce Back Loans should be aware that the UK Government and lenders are taking a more active approach to recovering loans provided during the pandemic. This is because lenders need to recover the funds to repay the Bank of England the money used to fund Bounce Bank Loans. According to reports, only around £17bn of the £77bn advanced under UK Government Covid guarantee schemes has been repaid by borrowers. A staggering £7bn has been settled under these schemes.
These figures indicate that for many businesses, particularly SMEs, the challenges of meeting Bounce Back Loan repayments remain very current and real. Only about half of the loans made by the Big Four UK banks are on schedule or have been repaid in full.
Against this backdrop, company directors must fulfill their legal obligations. Directors must ensure that they seek professional insolvency advice on their position should the monthly repayment of their Bounce Back Loan start to impact the cash flow of the business.
EIGHT KEY QUESTIONS ABOUT BOUNCE BACK LOANS ANSWERED
1. DO BOUNCE BACK LOANS HAVE TO BE REPAID?
Yes, they do, however, if the monthly repayments become an issue, the directors should open a dialogue with their lender to enquire about a possible payment holiday or a reduction in the monthly amount being paid.
2. WHAT HAPPENS IF I CAN’T PAY BACK MY BOUNCE BACK LOAN?
If your discussion with your lender has not resulted in a payment holiday or a reduction, then unfortunately your options are limited as to what you can do.
Your options will be either you find a way to make your monthly repayments with adjustments to your monthly cash flow, or you should discuss with a Licensed Insolvency Practitioner your options regarding continuing to trade and your responsibilities therein.
3. ARE BOUNCE BACK LOANS BEING WRITTEN OFF?
No, not by the lenders, they will pursue the company for any short payments or outstanding arrears.
The only way currently to have Bounce Back Loans written off would be to place the company into Liquidation, at which point the loan could not be repaid and the lender would apply to the Government to recover any shortfall.
You should discuss this possibility with a Licensed Insolvency Practitioner before the monthly repayments become an issue. This will allow the Insolvency Practitioner to explore any options that may be available to help resolve your company’s situation as there are solutions that may be available to you.
4. ARE BOUNCE BACK LOANS PERSONALLY GUARANTEED?
No, they are not. Regarding any non-payment, as long as you have correctly utilised the funds, you should have no concerns regarding any impact on your personal liability position.
5. HOW CAN I AVOID REPAYING MY BOUNCE BACK LOAN?
All attempts should be made by the directors to repay Bounce Back Loans. However, directors have to ensure that in their attempt to keep making payments to their lender, they do not knowingly continue to trade their business while not being able to pay other creditors.
All directors have a legal obligation to cease trading their business while knowingly being unable to pay suppliers or knowingly trading while Insolvent as this might jeopardise their Limited Liability position should the business fail anytime in the future. In addition, any such actions by a director can be reviewed by a liquidator should the business fail and may lead to legal action against the director personally and/or director disqualification proceedings. Therefore, when your business begins to struggle, seeking early advice from a Licensed Insolvency Practitioner is strongly recommended.
A Licensed Insolvency Practitioner can advise directors of their position and of any possible solutions that they might be aware of that might help resolve the situation.
6. CAN I AVOID AN INSOLVENCY PROCESS AND STRIKE MY COMPANY OFF IF IT HAS A BOUNCE BANK LOAN?
This is not advised. The risk of striking a company off that has a Bounce Back Loan is that the director could be found personally liable for the entirety of the loan after the company is struck off the register and could risk being investigated by the Government’s insolvency service and disqualified from acting as a director in the future under powers granted by the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021. It is likely before it gets to the point of strike-off that the lender will object to the strike-off anyway due to the outstanding Bounce Back Loan.
7. CAN A LICENCED INSOLVENCY PRACTITIONER HELP WITH ADVICE ON BOUNCE BACK LOAN ARREARS?
Yes, there’s plenty of free advice available from Licensed Insolvency Practitioners regarding Bounce Back Loans. The earlier a director takes advice, the more options are available.
8. IF I SPEAK WITH AN INSOLVENCY PRACTITIONER, WON’T I LOSE MY COMPANY?
No, it’s a common misconception that any such discussion will result in Directors losing their business.
Insolvency Practitioners are only too happy to discuss with any Directors any concerns that they might have regarding the financial viability of their business and will be able to give free advice and may be able to introduce solutions.
Remember that Recovery and Insolvency are very specialised and you owe it to yourself and your employees to get the best advice to ensure your next move is correct.
At AAB we are happy to discuss with you at any time any business issues you may have. Our Restructuring & Recovery team is pleased to answer any questions, no matter the size of your business.
BOUNCE BACK LOANS ADVICE
For free, independent advice on Bounce Back Loans call Jim Warnock on 07736 774662 or Phil Dunn on 07810 357171.
This blog is part of our Bounce Back Loan series. If you missed the first blog don’t worry, we’ve got you covered with Steven Rodden’s ‘What happens if I can’t pay my bounce back loan‘.
Pictured: Jim Warnock, AAB
