inquesta-corporate-recovery-and-insolvency

BOUNCE BACK LOANS

If you took out a bounce back loan, it is important that you know your rights, and where you stand if you find yourself unable to repay it.

Book a Consultation

What is a Bounce Back Loan?

A bounce back loan (BBL) is a type of loan that was introduced by the government as a result of the COVID-19 pandemic. The aim of the loan was to allow companies that had been most affected by the pandemic to better ‘bounce back’.

The scheme was launched in May 2020 and was primarily aimed at those smaller-to-medium sized businesses that had been hit hardest by the loss of trade during the countrywide lockdowns. BBLs were open for new applicants until 31st March 2021.

The loan allowed companies that had been affected to borrow up to 25% of their expected turnover (between £2500-£50,000). It was guaranteed by the government for the first 12 months, to further help boost the nation’s businesses, and 2.5% interest rates per annum were set for the years following.

For a business to be eligible for a bounce back loan, they must have first met a series of strict criteria. These were to ensure that the loan wasn’t being used fraudulently and was only reserved for those companies that truly needed it.

The Bounce Back Loan Scheme Rules

While the business bounce back loan was introduced with the best intentions, strict rules needed to be adhered to in order to qualify. These rules, including how much of your annual revenue is due to trading and when the company was founded, were introduced to discourage ineligible people from applying.

Firms were initially expected to repay their loan within six years, but in September 2020 businesses were afforded the option to repay over a 10 year period. No personal guarantees were needed, meaning an inability to repay would not put personal assets at risk.

In order to be eligible for the business bounce back loan, a company must have been able to confirm the following:

That the business had been a UK limited company on or before 1st March 2020.
It was not in the process of bankruptcy/liquidation/restructuring
Over 50% of its income must have derived from trade
The loan would only be used for economic benefit for a registered UK business.
Company directors had full and total understanding of the impact failure to repay the loan could have on the business, and on credit rating.
The business was not in the public sector, an individual (sole trader’s are eligible), or a bank/insurance company.

HMRC Clamping Down on Bounce Back Loan Fraud

Business bounce back loans were handed out in good faith by the government amidst the biggest hit on UK companies in recent memory. As a result, the loans were guaranteed. However, because of the generous terms of the loan, some were found guilty of taking advantage. This is now something HMRC are now heavily clamping down on.

Anybody found to have applied for and used their business bounce back loan for any reason other than to protect their firm against the financial damage caused by the pandemic could now find themselves in serious trouble.

As a result of the amount of people opting to take advantage of the scheme, severe punishments were brought in and enforced for those found guilty. These include:

Major fines
Disqualification as a company director
Confiscation order of company/personal assets
Potential imprisonment

If you as a business owner or director find yourself unsure on how you may have utilised your bounce back loan, it is crucial that you get in touch with a licensed insolvency practitioner as soon as possible to ensure that you are protected should HMRC find anything untoward has happened.

Download our FREE Guide to Liquidation

While a partnership voluntary arrangement does offer a lifeline for struggling partnerships, it’s by no means guaranteed to succeed in every case. If the partnership is unable to meet the terms of repayment, or it becomes clear that recovery is no longer viable, the next steps may be to consider closure, including liquidation options.

Liquidation involves winding down the business and distributing assets to satisfy creditors. It’s a complex process, with various legal and financial implications — understanding this is key. For a comprehensive guide on what liquidation entails, download our dedicated Liquidation guide to learn more.

Download Now

What to Do if You Are Struggling with Bounce Back Loan Repayment

Bounce back loans were introduced to give struggling companies a lifeline to protect themselves from the financial struggle of the pandemic. However, some businesses were hit harder than others and found themselves unable to pay. So what next? Fortunately, from pay as you grow to insolvency, there are options available.

Some of the key options available to any business struggling with bounce back loan repayment are as follows:

Pay As You Grow Scheme

When the bounce back loans were initially devised, it was hoped that the huge pressure UK businesses faced would soon ease and life could begin to return to normal. This unfortunately was not able to happen, and the financial grip COVID-19 had over tens of thousands of firms kept tightening as the weeks went on.

It quickly became clear that while bounce back loans were a necessary idea, the ballooning duration of the pandemic lockdowns meant that alternative repayment strategies would need to be devised to protect Britain’s businesses. As a result, in September 2020, the government announced a new repayment scheme known as Pay as you Grow.

It acted to ease the overwhelming pressure that was building, allowing them some breathing room against repayments while they concentrated on keeping their heads above water. The key features of the scheme were:

The option to defer a portion of their repayment.
Extension of the terms of the loan from six years up to ten.
A continuation of the fixed interest rates despite the extension.
Each applicant was afforded a ‘repayment holiday’ entitling them to pause all repayments for up to six months, one time only.
Businesses were also able to reduce their repayments for a six month period and were only required to pay the interest. This was available to do up to three times during the repayment period.

Company Voluntary Arrangement

Despite the introduction of repayment schemes, not all businesses are able to pay back all of their accrued debt. If this is true for you, a Company Voluntary Arrangement (CVA) could be the best option for you.

A CVA is a method commonly utilised by businesses in serious financial difficulty that need assistance to repay accrued debt and avoid liquidation, securing the long-term future of the company.

It is a legally binding agreement held between a creditor and debtor that acts to ensure that the debt will be repaid, but affords additional time, and favourable terms, to allow the company to continue operating to trade their way out of debt. Failure to adhere to the terms of a CVA can result in a winding up petition being taken against the business, and could lead to liquidation.

Administration

Administration details the process of a company, faced with serious unpaid debt and possible insolvency, appointing a licensed administrator to attempt to balance the books and ensure that creditors can be paid.

While it may sound intimidating, for some businesses administration can represent the best opportunity to regain control over their finances.

The process of administration involves the appointment of an insolvency practitioner who will act on the behalf of creditors to formulate a coherent strategy of how to repay company debt. In doing so they will also attempt to better the firm’s situation, though this takes a back seat to the repayment of debt.

While in the process of administration, an official moratorium is put in place to protect the business from all legal proceedings. This is to properly allow the company to evaluate their operations and work out how to go about getting money owed to their creditors without needing to shift attention to ongoing legal battles.

While it can be a lifesaver for a business, the severity of the situation a firm must be in to warrant the sanctioning of administration means that not all companies will survive the process. It is important that you weigh up all your options before you begin.

Liquidation

Company liquidation represents the final stage for a business. It is the formal process that leads to a firm being wound up; all trade will cease, employees will be wound up, any assets are sold off etc.

The process of liquidation involves the appointment of a liquidator (this can be done either by the company or the courts) to assess the situation. In the case of a compulsory liquidation, they will also ensure that there was no wrongdoing on the part of business owners.

It is at this stage that a liquidator will attempt to establish how the business used its BBL to ensure that all funds were used appropriately. If no foul play is found the liquidation will go ahead with little personal liability and the BBL will be covered by the government. However, if something untoward is found, directors could be found liable for the loan and face sanctions.

How Inquesta Can Help with the COVID Bounce Back Loan

Inquesta possesses a specialist team of licensed insolvency practitioners, liquidators, and forensic accountants ready to provide your business with whatever service you could need.

With decades of experience, we will do everything we can to help your company get back on track. Using our expertise, we will guide you through the entire process

The best interests of our clients come first in everything we do — from start to finish you can guarantee that we are working to help you, in the most-stress free and efficient way possible.

We understand that bounce back loans were taken out by businesses during difficult and stressful times, and we want to help make sure that the difficulty and stress disappears.

Get In Touch

Our Specialist Team

We have put together an expert team that can deal with all your bounce back loan queries.

Steven Wiseglass

Director of Insolvency

A co-founder of Inquesta, Steven is a licensed Insolvency Practitioner with over a decade of experience in the field. He is a member of the Insolvency Practitioners Association, Association of Business Recovery Professionals (R3), and his insolvency licence is issued by the Insolvency Practitioners Association. In addition, he sits on the R3 committee of the North West Regional Committee.

Steven specialises in advising directors of small to medium-sized businesses, and has a wealth of expertise in providing the most appropriate advice whatever the firm’s circumstances may be. He has also been instrumental in helping company directors save their business and rebuild them into successful enterprises.

Contact

FAQs

Can I Have Two Bounce Back Loans?

A company cannot be eligible for a second bounce back loan. Should a business be found to have received two bounce back loans, an investigation will take place to determine the extent of wrongdoing and misconduct. It is possible for official sanctions to take place due to bounce back loan fraud.

When Does the Bounce Back Loan End?

The repayment period for a business who has taken out a bounce back loan is officially six years — meaning that payments will take place regularly until the period is up and the loan (including interest has been repaid). However, the government extended this period to up to ten years for any businesses struggling to keep up with the repayments.

I Cannot Pay My Bounce Back Loan, What do I do?

As a result of the severity of the financial issues facing companies, in 2020 the Chancellor announced the Pay as You Grow scheme for struggling companies. This extended the loan length from six to ten years, the option for interest-only payments for three six month periods, as well as the option for one repayment holiday of up to six months during the repayment period.

If you still cannot repay your bounce back loan there are certain measures you may wish to consider, these include:

Company Voluntary Arrangement
Administration
Liquidation

For further advice or assistance it is recommended that you contact a licensed insolvency practitioner as soon as possible.