What happens if I can’t pay my Bounce Back Loan?

Steve Rodden

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What is a Bounce Back Loan?

The Bounce Back Loan Scheme (‘BBLS’) was introduced by the Government during the Coronavirus pandemic, with the purpose of helping sole traders and small to medium sized businesses (SMEs) to survive the financial effects on their businesses.

Loans were typically interest-free or low interest, with more lenient repayment terms to provide the business owner with some breathing space. The amount available to borrow ranged from £2,000 up to £50,000. There were conditions attached to Bounce Back Loans, the main one being that they were not to be used for personal purposes.

Further information is available on the gov.uk website by clicking here – https://www.gov.uk/government/publications/fact-sheet-bounce-back-loans/fact-sheet-bounce-back-loans

Are Bounce Back Loans still available?

Bounce Back Loans are no longer available as the scheme closed to new applications on 31st March 2021.

Government figures show that more than 1.5 million Bounce Back Loan Scheme applications were approved at the beginning of, or during, the Covid 19 pandemic, with the value of the approved facilities exceeding £47 billion. Loans provided to small and medium-sized businesses under the BBLS ranged from £2,000 to £50,000.

The Department for Business, Energy & Industrial Strategy (BEIS) has estimated that there could be up to £27.9 billion worth of defaults on the bounce back loans. That equates to more than 900,000 loans being defaulted on.

For a sense of the magnitude of the sums involved, that would be 86% of the United Kingdom’s defence budget for 2022-23, or more than three times the cost of building NASA’s James Webb telescope and putting it into an orbit 1 million miles from earth.

What are the bounce back loan repayment terms?

The terms of the loans range from six to ten years, with repayments beginning twelve months after the company received the loan.

Will the Government Write Off Bounce Back Loans?

Bounce Back Loans were guaranteed by the Government however that doesn’t mean that it will be written off if a company can’t repay the loan. The only situation in which a Bounce Back Loan would be written off is if the company in question were to be liquidated.

What if my company cannot maintain repayments on the loan?

Below we have included some examples of the next steps you can take if your company cannot repay its business bounce back loan.

Discuss options with your lender if you’re likely to default on your bounce back loan
Any company that finds itself in a position where it cannot maintain repayments on its bounce back loan should approach its lender as the first port of call to discuss its difficulties and the options available to the company.

Can you reduce your monthly Bounce Back Loan repayment amount?
The lender could offer the company a reduction in their loan repayments for six months. Which would mean only the interest on the loan will be repayable for that period. The lender could also agree to a six-month repayment holiday. This could afford a company some respite from cash flow difficulties, and the opportunity to re-assess issues such as customer payment terms, supplier payment terms, or cost savings the business could make.

Negotiate with HMRC and other creditors for flexibility on repayment terms
Longer term, businesses may need to consider strategies that enable them to manage liabilities sustainably and on an ongoing basis. The first step is often to establish what the company’s total liabilities are; to whom those liabilities are owed; and what the repayment terms of each liability are. A plan can then be formulated to ascertain whether the company has enough income to meet all of its liabilities as they fall due. If it doesn’t, might there be some flexibility in repayment terms, for example:

• Is there flexibility available in the bounce back loans?
• Can the company approach HM Revenue & Customs, finance providers, investors, or suppliers to discuss its situation?

The company will need to be able to explain to these parties what it proposes to do to remedy its cash flow problems, how that will involve these third parties, and ask if they have any scope for flexibility on repayment terms. These parties will often appreciate the dialogue and, although there are no guarantees, may be more open to finding ways to accommodate the company than they would be if payments are remitted late or are missed completely.

Prepare cash flow forecasts to gain a sense of control over your cash flow
Those in charge of the company need to ensure they have a detailed understanding of how and when cash moves in and out of the business and how much is needed on a month-to-month basis to keep things running smoothly. Preparing cash flow forecasts can help with this. They can be an opportunity to assess whether there are areas where cost savings can be made, if systems for approving expenditure can be better controlled, if there are times when less stock can be carried, whether customers pay on time, or are followed up systematically if they don’t.

These forecasts may also present an opportunity to negotiate with suppliers so the company can pay its debts at a time in the month when it’s cash-rich, rather than incurring more credit or dipping into an overdraft.

Reach out to an insolvency practitioner to wind up the company formally
If a director forms the view that a company is not going to be able to meet its liabilities as they fall due, by law they must seek advice from an insolvency practitioner. The insolvency practitioner may be able to review the company’s financial information and suggest a way out of the predicament. But if not, they can advise the company directors on the steps they need to take to close the business and wind up the company lawfully.

Given the sheer number of Bounce Back Loans that have been provided, it is inevitable that some companies will not be able to maintain repayments, despite earnest efforts to restructure the loan. It is incumbent on company directors who realise that their company cannot maintain BBLS repayments that they seek advice early.

How we can help

Our expert Restructuring & Recovery team of licensed Insolvency Practitioners and staff have supported clients across a wide range of sectors including hospitality, leisure and construction, and would be delighted to discuss the options available to you. We are here to navigate you through this so please call us at 0141 221 2984 or contact us here today.

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Restructuring & Recovery

If you or your business are experiencing financial difficulties, we can advise on your best course of action and options available, including your duties as a Director and whether a rescue is possible for your business. Not all our work involves distressed situations; we have extensive experience with Members' Voluntary Liquidations (MVLs) and strike-offs and will work with our corporate and personal tax teams, to advise on the most tax-efficient route for the beneficiaries.

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