What should I do if I can’t repay my Bounce Back Loan?

Bounce Back Loans came with a government guarantee, which meant the government would repay the loan to the bank if a company couldn’t. But that doesn’t mean the government will simply write your loan off.

The government will only step in to repay the loan if your business is no longer viable and you close it down via insolvent liquidation. However, if the liquidator finds that you misused funds from the Bounce Back Loan i.e. you spent it on yourself rather than the business, you can become personally liable for repaying the outstanding amount.

If your company is still viable but needs some financial breathing space, you should contact your lender to discuss how the Pay As You Grow (PAYG) scheme (described below) can help. That could lower your monthly repayments and improve your cash flow situation.

If you amend the terms of your BBL but still can’t make the repayments, your business is insolvent. At that point, you should seek professional help from our licensed Insolvency Practitioners. We will discuss your circumstances and guide you on your next steps.

The government introduced the Pay As You Grow scheme in 2020 to ease the financial pressure on businesses that are having trouble repaying their Bounce Back Loans. If you’re struggling to make the repayments, contact your bank and they will offer several routes to reduce the financial burden. You can:

• Request a six-month repayment holiday
• Make interest-only payments for six months, which you can do up to three times during the loan period
• Extend the repayment term of your loan from six to 10 years

You can use one of these options in isolation or combine them to help you get back on track.

If a Bounce Back Loan is one of several debts the company has but you still believe the business is viable, there are other options available to you. 

Alternative finance

It’s worth exploring your alternative finance options to see whether you can raise the funds you need. For example, invoice finance, which releases the money tied up in unpaid customer invoices, could provide a cash flow injection to help you meet your short-term liabilities. Alternatively, if your company has valuable assets, you can use an asset as collateral to secure a lump sum.  

Time to Pay arrangement

If you have tax debts alongside a Bounce Back Loan, you can contact HMRC to negotiate a Time to Pay arrangement. That would allow you to spread your tax liability over a typical period of up to 12 months and make your Bounce Back Loan repayments more manageable. You can negotiate with HMRC yourself or ask our Insolvency Practitioners to present a proposal on your behalf. 

Company Voluntary Arrangement (CVA)

If you have multiple creditors you are struggling to pay, such as trade suppliers, overdrafts, credit cards, tax debts and the Bounce Back Loan, setting up a Company Voluntary Arrangement (CVA) could be your best option. A CVA allows you to combine all your debts into a single monthly instalment that you pay over three to five years. 

A CVA is only appropriate for viable businesses and your creditors will vote on whether to accept your proposal. If they agree, the CVA will be legally binding on all parties. As it’s a formal insolvency procedure, you can only enter into a CVA with the help of a licensed Insolvency Practitioner.

If your business cannot pay its debts, including a Bounce Back Loan, and it’s no longer financially viable, it’s in everyone’s best interests to close it down. You can liquidate a business with a Bounce Back Loan by entering into a Creditors’ Voluntary Liquidation (CVL) – a liquidation process you initiate yourself under the guidance of a licensed Insolvency Practitioner. 

Acting as the liquidator, the Insolvency Practitioner will take control of the company, bring an end to its affairs, and value and sell its assets. The liquidator will use the proceeds from the sale of assets to repay your creditors as much as possible before closing the company down. Any debts the liquidator cannot repay from the sale of assets will be written off, including the Bounce Back Loan.

As you did not sign a personal guarantee to secure the Bounce Back Loan, ordinarily, you will not become personally liable for the debt following an insolvent liquidation. You will only have to repay the outstanding debt from your personal finances if you misused the loan funds.

The purpose of the Bounce Back Loan was to provide an economic benefit to the more than a million small businesses struggling due to Covid. There were no strict rules around how you should spend the money, but it had to be to benefit the business. For example, you could boost cash flow, buy new equipment to adapt to the changing landscape or supplement staff wages. Bounce Back Loans were not intended for personal use. 

If you used the money to buy personal assets, fund a disproportionate increase in your salary or simply transferred the money into a personal bank account, you could become personally liable to repay the loan on liquidation.

If you’re struggling to repay a Bounce Back Loan and want to discuss your options, or are worried about Bounce Back Loan fraud, we can help. We will assess your situation, explain your options and provide guidance on the best route forward. Get in touch to arrange your free, same-day consultation with our team.