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What to do if you cannot repay your Bounce Back Loan (BBL)
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What happens if I cannot repay my Bounce Back Loan?
If you cannot repay your Bounce Back Loan your lending bank may be able to help you spread your repayments over a longer period of time, or give you a short payment holiday to give you some breathing space. Being unable to repay your Bounce Back Loan may hint at deeper problems within your company, therefore you should be alert for other warning signs of insolvency.
If you cannot afford to repay your Bounce Back Loan, there are several options available to you. If you believe your company is viable and you believe you will eventually be able to repay the loan in full, you should discuss this with your bank and see if they would be open to amending your repayment terms.
If the disruption caused by the pandemic, immediately followed by a Cost of Living crisis, has taken your business beyond the point of rescue, you may need to consider a formal insolvency arrangement.
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If you don’t believe your company is in a position to repay its Bounce Back Loan, you may be worried about how this will affect you personally.
Banks were given 100% security for lending by the government through the Bounce Back Loan scheme. This means that you were not required to provide a personal guarantee, and if your company can't pay the Bounce Back Loan and ultimately enters liquidation, the government will step in and ensure the bank receives payment for the money outstanding.
Unless you have misused the Bounce Back Loan funds, you will not be held personally responsible for repaying the money owed. It must be stated, however, that your company cannot just declare that it cannot repay the Bounce Back Loan and have it repaid by the government. The government security on the loan will only take effect should your company enter a formal liquidation process.
Your options for closing an insolvent business are the same whether or not you have an outstanding Bounce Back Loan. It is possible to liquidate a business with a Bounce Back Loan.
The voluntary liquidation of an insolvent company is achieved using a formal insolvency procedure known as a Creditors’ Voluntary Liquidation (CVL). A CVL can only be entered into under the guidance of a licensed insolvency practitioner who will oversee the whole process on your company’s behalf.
All assets belonging to the company will be identified before being sold for the benefit of outstanding creditors. Once this has been done, the company will be wound up, and its name removed from the register held at Companies House. At this stage, the company will cease to exist as a legal entity. Any debt which remains at this point will be written off unless this has previously been secured with a personal guarantee. As Bounce Back Loans did not require a personal guarantee to be given, directors will not be held liable for the Bounce Back Loan once the company has been liquidated so long as the funds have been used in an appropriate manner.
Bounce Back Loans are underwritten by the government, meaning no personal guarantee had to be given. This means that in the vast majority of cases, a company going into liquidation while holding a Bounce Back Loan will not be responsible for repaying the money owed and instead the outstanding balance will be covered by the government.
Read more on our article which discusses whether you can write off a Bounce Back Loan. However, you should be aware that as part of the liquidation process, the appointed liquidator (or Official Receiver in the case of compulsory liquidation) will assess how the Bounce Back Loan was spent to ensure the funds were not misused. If misuse is suspected, you could be held personally liable for the loan.
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The criteria around what a Bounce Back Loan could be used for was relatively broad and could be used for a variety of purposes, including to help cash flow, as investment in the business, or providing working capital. The Bounce Back Loan, however, must be used to provide an economic benefit for the business. A Bounce Back Loan was not for personal use.
The Treasury confirmed that a Bounce Back Loan could be paid as a dividend if the business in question has retained profits but is cash poor. However, rules regarding unlawful dividends and insolvent companies still apply. Taking dividends from a company known to be insolvent may need to be paid back if the company enters a formal insolvency process later down the line. If a liquidator feels that excessive dividends played a part in a company going bust, again the use of these funds would be scrutinised and directors could be liable to repay the money.
If you are worried that you may have misused your Bounce Back Loan, you should seek expert help and advice as a matter of urgency. It is much easier to voluntarily deal with these types of situations while you still can, rather than wait for an investigation to be forced upon you.
A licensed insolvency practitioner will be able to assess the situation for you, explain what a Bounce Back Loan could be used for, and help you understand the options available to you and your company when it comes to your Bounce Back Loan.
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If your company is struggling to repay its Bounce Back Loan, but you believe there is a chance of turning its fortunes around, there are a range of both formal and informal restructuring options which can help you achieve this.
If your Bounce Back Loan is one of a number of credit agreements your company has, you can attempt to enter into negotiations with your other creditors to see whether they can offer any flexibility when it comes to your monthly repayments. This can be done formally through a process known as a Company Voluntary Arrangement (CVA).
If you owe money to HMRC, you could consider a Time To Pay (TTP) arrangement, which allows you to repay your tax arrears over a period of up to 12 months. You can open these negotiations yourself, or we can facilitate these discussions on your behalf if you would prefer.
We can also look at ways of refinancing any existing credit that you have that is not the Bounce Back Loan. We can scour the market for the most cost-effective finance options on the market, and work towards securing borrowing on terms which are both more affordable and also more sustainable.
If you are a limited company director and are worried about how you are going to repay your Covid-19 Bounce Back Loan, or maybe you have already registered a default on your loan, it is vital you seek expert help and advice as soon as possible. The sooner you take action, the more options will be open to you and your company. We can consider your options for both rescuing your company and also for closing it down if you no longer believe it is viable.
Real Business Rescue operate from over 100 offices across the country and offer a free initial consultation to all directors and shareholders. Call our expert team for immediate advice on your Bounce Back Loan today on 0800 644 6080.
Further Reading on What to do if you cannot repay your Bounce Back Loan (BBL)
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