Bounce Back Loan Fraud
“But everyone’s doing it, aren’t they?”
It was just last year that the government decided to offer bounce back loans to support business owners through the beginning of the pandemic. Most people completed the application honestly but there have been some instances whereby directors were dishonest and are now worrying about bounce back loan fraud checks.
The pandemic led to a lot of financial stress and difficulty for business owners and therefore the government put plans in place to offer some financial support. Business owners were able to apply for a bounce back loan of up to 25% of their annual turnover, the loan was for between £2,000 and £50,000. It was not possible to apply for more than £50,000. If you have not taken the government up on their Pay As You Grow (PAYG) scheme then it’s likely that you’ve started paying back your loan now.
Appling for the loan
When applying for the loan, it was made clear to businesses that there was no personal guarantee involved. This means that if you ended up in a position whereby you could not afford to pay the Covid loan back, the government would cover the costs. Of course, this is only the case if you can prove that you have been responsible with your loan and have applied for the correct amount that you are entitled to. The lack of personal guarantee also gave directors security in that personal belongings were not at risk if their business defaulted on the loan and could not pay it back.
Bounce back loan fraud
Acting responsibly with your loan is one of the key areas that will be looked at when it comes to bounce back loan fraud checks. This means that the money has been spent for the benefit of the business. This can be for things like staff wages, the running costs of a premises, VAT, corporation tax, stock and even director’s salary.
There are different types of fraud associated with bounce back loans, they include ‘soft fraud’ which is owners who have borrowed more money than they should have. For example, their annual turnover is £50,000 altogether and instead of borrowing the amount they should have (£12,500) they have applied for £50,000.
Another type of fraud is ‘hard fraud’ which involves a bounce back loan being deliberately defrauded. For example, a business owner who has impersonated an individual to apply for the loan, an owner who has applied for multiple bounce back loans with different lenders or an owner who has used people to take out loans after liquidating the company or filing for bankruptcy.
It has not yet been made clear when the loans will be investigated or what the repercussions may be due to backlogs in court. It is likely that they will include sentences and orders such as:
- Confiscation orders
- Director disqualification
- Civil recovery orders
- Civil settlements
- Civil penalties
If you are aware that you have committed some kind of fraud with your bounce back loan then the best thing you can do is get in touch for advice as soon as possible.
Applied for a bounce back loan with the wrong turnover
The most common issue of bounce back loan fraud comes from those who thought they could give a projected turnover instead of their actual turnover. It was only those who began operating after the 1st of January 2019 that were advised to give a projected turnover due to not operating for long enough when applying for the loan. This meant that many business owners inflated their turnovers and failed to meet them.
If you have applied for a bounce back loan with the wrong turnover, you should be prepared to pay some of the money back. Some banks have already started assessing bounce back loan applications and therefore are beginning to request the money back from company directors.
If you’re in a position whereby you expect that you will be able to continue paying back your bounce back loan each month then you’re likely feeling quite at ease. However, for some businesses this may not be the case. Upon applying for the loan, businesses were not asked to declare whether or not they believed they would have bounced back in the 12 months following the application. This means some business owners may not have even considered this.
The sad part for many business owners is that they applied for the correct amount of money and have tried their hardest to carry on but their business is still struggling financially. If this is the case for you then do not panic. You will not be accused of wrongdoing if you can prove that you have acted responsibly and took out the loan when the business was ‘financially sound’. This means the business was not experiencing any financial hardship prior to the pandemic.
If you genuinely believe that you will not be able to pay back your bounce back loan then you should consider entering liquidation. If your money has been spent on trying to keep the business afloat and it has not worked, liquidation will mean that the government will pay your bounce back loan back to the bank that issued it and you will not be pursued personally. All unsecured debts in a liquidation are written off.
Some key advice is to seek support early and do not continue operating if you know you cannot pay back your debts. Continuing to trade when you know you cannot afford to can lead to you being accused of wrongful trading or trading while insolvent, this could potentially lead to you being made personally liable for some or all of the companies debts.
Knowing what to do in this situation can be difficult and we understand that talking about money is not always easy. The most important advice we have if you’re worrying about bounce back loan fraud checks is to act fast. If you know that you are going to struggle to pay back your company debts then seek help. Most directors that we speak to end up leaving the phone call feeling relieved.