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Can’t repay a bounce back loan: What are the consequences and solutions?

The Bounce Back Loan Scheme (BBLS) was set up by the government to provide support to businesses during the Covid-19 pandemic. The loans of up to £50,000 were handed out by various lenders with minimal due diligence and obtained by many companies, some of which would have struggled to access finance without the scheme. Many companies have since found themselves in a situation where they can’t repay a bounce back loan.

Here, Jason Elliott from Cowgills Business Recovery looks at the consequences for these companies and the options available.


What happens if you can’t pay your BBL?

Millions of businesses and directors are at now at risk because they are unable to repay their BBL and the consequences depend on whether the loan was taken as a Limited Company or a Sole Trader.


If you took a BBL as a Limited Company

The loan is treated like any other business loan. If you miss several repayments, the lender will be likely to start proceedings to recover the debt.

This might involve repossessing assets, legal action or, more likely, forcing the Liquidation of your Company. There may be the option for a payment holiday, although this may only be a short term solution which delays the inevitable.

Many companies are now facing Liquidation because they cannot afford to pay back their BBL and the use of the scheme is a matter to be investigated by an Insolvency Practitioner.


If you took a BBL as a Sole Trader

In this case, you do not have the protection of a Limited Company and the BBL is just the same as any other personal loan, meaning you are liable for the outstanding amount.

Failure to repay your BBL will likely result in the lender starting legal action and may begin the process to make you Bankrupt.

This can put assets such as your home at risk so it is essential to seek professional help immediately.


Can my BBL be written off?

BBLs cannot be written off if your company is still active and trading although you may be able to negotiate terms with the lender. This could involve lengthening the term of the loan or taking a short repayment holiday.

The government security on the loan will only take effect should your company enter a formal liquidation process so if you want your business to continue then the BBL and its repayments must be dealt with.


What happens in the event of a Liquidation?

In the event of Liquidation, an investigation will be undertaken into how the BBL was spent and if there is evidence the BBL was not utilised appropriately, this can have serious implications for the directors involved.

Furthermore, consideration also must be given as to the eligibility for the loan, and the information provided to the lender at the time of the application.

If the loan was obtained fraudulently or misspent the loan as a director, you could face legal action and be liable for all or part of the loan even if there is no personal guarantee in place.

Further, directors can be found guilty of ‘misfeasance’, i.e. not fulfilling their duties as a director. This can lead to disqualification and being prevented from being a company director for up to 15 years.


Unsure whether you have broken the rules?

If you are struggling to replay your BBL and are facing Liquidation or Bankruptcy, then establishing whether or not you have applied for or utilised the loan incorrectly is essential, and it is important that you seek the appropriate advice of insolvency professionals who can advise on your conduct.


Seek professional help – early intervention is vital to survival

The fact that your company is currently unable to repay your BBL does not mean that all hope is lost. There are many ways of turning around a business in financial distress which may involve creditor negotiations, refinancing, or a complete restructure of its operations.

Don’t bury your head in the sand. If you are worried about your businesses finances, it does not have to mean the end – but you should seek professional advice as soon as possible – early intervention is vital to survival. Restructuring assistance is available and possible but timing and planning are key.


About Cowgills

Cowgills is a leading independent firm of Chartered Accountants and Business Advisors based in the North West of England – from Greater Manchester to Liverpool. We use our sector experience to deliver tailored financial solutions and support for businesses.

Get in touch with our Head Office in Bolton, Greater Manchester, for any financial advice, if you can’t repay a bounce back loan, or get in touch with Jason Elliott directly at jason.elliott@cowgills.co.uk.

Can’t repay a bounce back loan

The information was correct at time of publishing but may now be out of date.

Business Recovery
Posted by Jason Elliott
5th February, 2024
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