What to Do if You Can’t Repay a Bounce Back Loan

If you are a company director and your business now can’t pay back instalments on the Bounce back loan, the first question to consider is whether your business is insolvent. 

Some directors also advise us that they worry about whether there may be an investigation into whether their company was eligible for a bounce-back loan and how the money received was used.

If your business might be insolvent, you certainly should not prioritise paying some creditors over others. However much some of them pressure you.

If you are fairly clear that you won’t be able to pay the Bounce Back loan instalments in the medium to long term, your business is almost certainly insolvent, and you should cease trading.

If insolvency is inevitable, in most cases, voluntary liquidation will be the best option, and this tends to reduce the possibility of an in-depth assessment of whether you should have received Bounce Back loan funding in the first place.

If your financial problems are more short-term, it may be possible to negotiate a payment holiday or reduced payments with a longer term with your bank, although this is uncertain because the bank has the benefit of a Government guarantee on the loan and may not be as flexible with you due to that.

As insolvency practitioners, we offer support to company directors in situations like this. We also offer clear and accurate advice and careful and regulated solutions to challenges such as being unable to repay creditors; either on time or at all.

If you are considering liquidation as an option as a direct result of being unable to service a bounce-back loan, then please reach out to one of our experts, who will be happy to help you.

Get Flexibility with Pay As You Grow

The government’s Pay As You Grow (PAYG) program provides businesses with more flexibility in repaying Bounce Back Loans if they are struggling with payments. There are three main options:

Payment Holiday

You can delay repayments for up to six months. This is in addition to the initial 12-month payment holiday when you first took out the loan. You do not need to have started repayments to qualify.

Extend Loan Term

You can lengthen the repayment term from six years to ten years. This cuts your monthly payments in half, though you will pay more interest over the full term.

Interest-Only Period

You can pay interest-only for up to six months. This reduces your monthly payment, while ensuring you don’t incur additional interest costs as you would with a full payment holiday.

To take advantage of PAYG flexibility for your Bounce Back Loan repayment, follow these steps:

1. Contact your lender – Call or email your Bounce Back Loan provider to inquire about applying for PAYG. Ask what documentation they require.
2. Formally apply – Submit the PAYG application form and required financial documents such as cash flow statements, profit and loss reports, etc.
3. Get approval – If approved, you will receive confirmation from your lender on the new repayment terms per your request (payment holiday, extension, or interest-only period).
4. Adjust payments – Once approved, continue making repayments according to the new schedule. If you requested a 6 month payment holiday, payments would be paused completely.
5. Resume repayment – After any payment holidays or interest-only periods, regular principal and interest payments will resume under the adjusted terms.
6. Monitor finances – Pay close attention to your cash flow to evaluate if more PAYG requests may be needed in future. Don’t wait until you miss payments.

What happens if you don’t pay a Bounce Back Loan?

If your business has defaulted here’s what you should expect to happen:

• You will receive a letter from the bank per their normal processes.
• Over time, the bank may escalate towards debt collection and/or court action if the amounts are not paid, although finance providers may differ in their policies.
• Banks have suggested that businesses refrain from seeking other finance from them in the future.

Current recommendations are for the approved lenders/creditors to follow ‘appropriate recovery processes’, using the Court where necessary.

As per the terms of the BBLS itself, lenders are required to offer a 12-month period after they have issued a formal demand to the borrower when pursuing the outstanding amounts.

What if my company can’t repay any of the bounce-back loan?

If your company cannot repay the bounce-back loan, it is likely in a state of insolvency. When your company reaches this stage, it is very important that you take great care, as your duties as a director change. Your priorities shift from the shareholders to the creditors, and you should consider seeking professional insolvency advice immediately.

Directors may have the option to enter the company into voluntary liquidation without the risk of personal liability, assuming that the funds were used as intended.

What are the implications for Directors?

In general terms, unless you have given a personal guarantee for company borrowings or have traded on when insolvent or dealt with assets in a way you shouldn’t have, you will not be personally liable.

Aside from this, Insolvency practitioners are required to investigate the company’s position before insolvency. Where evidence is discovered that the directors knew that the company was already insolvent, the liquidator will be required to investigate this.

It is unclear what repercussions HMRC has in mind for directors who have misused these funds. However, HMRC has allocated staff within a specific department to focus on investigating bounce-back loan fraud. As of the date of writing this article, there have been examples of directors being jailed due to proven deliberate misuse of the funds.

How to Minimise Personal Risks from a Bounce Back Loan?

Directors were asked to confirm that their limited companies were not insolvent at the point of the initial bounce-back loan application. Assuming this was true and the funds were used legitimately, there should be no issues over personal liability when facing liquidation or closing your business.

If your company is insolvent, choosing a creditor’s voluntary liquidation may help reduce risk. Whilst the liquidator appointed is bound to make enquiries about the director’s past conduct, he or she may not pursue this enquiry as vigorously as if a hostile creditor appoints him or her as part of compulsory liquidation.

Once a company becomes insolvent, however, the director’s duties become more onerous and seeking the professional counsel of a licensed insolvency practice, such as ourselves, is wise. We will be able to assess any other debts you may be personally liable for within the company outside of the bounce-back loan.

If I can’t pay, will the bounceback loan be written off on liquidation?

For company directors facing insolvency, the question of whether the bounce-back loan will be written off alongside the other business debts; is one that we get asked often. The simple answer is yes. The process of liquidation brings an end to all unsecured business debts, as well as the company itself.

A licensed insolvency practitioner must carry out liquidations. All creditors, including the finance provider of the BBL, will be paid in the order of priority. Funds made available to the creditors are realised by the Liquidator after selling any available assets that the company may have.

Liquidation if Repayment is Impossible

If your business is insolvent and repaying the Bounce Back Loan is impossible even with PAYG flexibility, liquidation may be necessary. Here is an overview of the process:

A licensed insolvency practitioner is appointed to handle the liquidation. All company assets are identified and valued. Assets are then sold to generate funds which are distributed to creditors based on priority.

Once this is completed, the company is dissolved. Any unpaid debt, including the remaining Bounce Back Loan balance, is written off.

There are two main types of liquidation:

Creditors’ Voluntary Liquidation

Directors initiate this. It is done voluntarily when the company is insolvent. This is the preferred option as it allows directors more control in the process.

Compulsory Liquidation

This is forced by a creditor petitioning the court. The court appoints an Official Receiver to act as liquidator. Directors lose control of the process.

In both cases, the end result is the company closes, assets are distributed, and unpaid debt is written off. Any misuse of funds will be investigated.

Please seek guidance from a licensed insolvency practitioner such as ourselves if you are considering liquidation and would like to know more about this process.

What if you can’t pay a bounce-back loan as a sole trader?

For sole traders, not being able to pay back your bounce back doesn’t give you the option of liquidating, as there is no separate company.

While you may be held accountable, The British Business Bank, acting on behalf of the government, clarified that although you may bear personal liability for a Bounce Back Loan, the lender cannot pursue your primary property or primary personal vehicle for collection purposes, thus safeguarding your home and car.

In the event that other personal assets are insufficient to settle the loan, the lender may consider initiating bankruptcy proceedings against you. Either way, we suggest you take professional advice to assess your options.

Looking for an Expert?

Our licensed insolvency practitioners are experts in their field and can offer you free and confidential advice via our live chat, phone, or email. Let us explain your options and the possible routes out of indebtedness.

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