Help I can’t pay back my bounce back loan
The first thing to remember if you believe you can’t pay back your bounce-back loan is not to panic. With the support and expert advice, we can help you.
What is a bounce-back loan?
Bounce back loans were offered by the government during the early stages of the Coronavirus pandemic. The aim of the loans was to support businesses suffering from financial difficulty due to loss of earnings and business closures.
The loan could be for up to 25% of the business’ yearly earnings, with a cap of £50,000. For the first 12 months after the loan is taken out you are not required to pay it back. After the 12 months are up, you will begin paying a set amount back each month with interest. The maximum loan length available was 6 years (unless you utilised the Pay As You Grow scheme). Taking out a loan for a longer period of time means that you will pay less per month but more overall due to the delay in payment.
Can’t pay back bounce back loan? Have you acted responsibly?
As long as you have acted responsibly throughout the process, applied for the correct amount of money, and spent it in ways to benefit your company then you have no reason to worry. If the business can’t pay the bounce-back loan, and other creditors, then a liquidation would bring an end to the business and all unsecured loans. This means the bank will write off the bounce back loan.
You may remember the application process for your bounce-back loan whereby you were asked whether your company was ‘financially sound’ before the effects of the pandemic kicked in. You were also asked to only apply for 25% of your company’s turnover in 2019, capped at £50,000 and you had to declare that the loan would only be spent for the benefit of the business that applies for the loan.
If you are found to have breached any of these terms then it’s highly probable that you will be made personally liable for some or all of the bounce-back loan and could also face director disqualification and in certain circumstances where premeditated fraud has taken place, criminal proceedings.
Acting irresponsibly with your bounce back loan may include using the money to pay for personal items, such as holidays, new cars, or home improvements. This is not responsible and could land you in trouble if you now cannot pay back your loan. If your company has used the money for personal items, you cannot expect to be given a bounce back loan write off.
A responsible way to spend your bounce back loan would be on things such as wages, running costs, and company bills. Essentially, every penny should be spent on keeping your business financially afloat.
If you have spent the money and you are unable to pay back the bounce back loan, follow this guidance:
What if I can’t pay back my bounce back loan?
If you can’t pay back your bounce back loan, the first thing we would suggest is getting advice from one of our team. Getting advice early can have a really positive impact on the outcome of the situation. Like we said earlier, if you have acted responsibly and spent the money on your business then you have no reason to worry. If you have not spent the bounce back loan in the correct manner or are concerned about some of the things that you have read in this article it’s important that you don’t bury your head in the sand and take action to understand what you can do about the problem. The sooner that you seek professional advice the more options that will be available to you and your business.
So, you might be wondering what you do if you can’t pay back your bounce back loan. Well, it’s likely that if you’ve reached a point and are unable to pay staff wages and running costs associated with your business, you may need to seek insolvency advice. If your business cannot afford to pay back its bounce-back loan then it has become insolvent. When a business becomes insolvent the responsibilities of the director change and you must put the interests of the creditors before your own. It’s really important that you don’t make your creditor’s positions any worse or you could be accused of wrongful trading which can also have serious consequences for a director personally. At this point, you should speak to someone about your business, the debts, and the potential options that are available. If you are considering liquidation then take a look at our blog on issues you face going into a liquidation and get in touch with us to discuss your situation.
Do you have to pay back the bounce back loan?
The first thing to remember is that you have options. The first option is to use the Pay As You Grow (PAYG) scheme whereby you can extend your loan repayment from 6 years to 10 years. You also have the ability to make interest-only payments for the first 6 months which may relieve some pressure from you and your business.
If you cannot utilise this PAYG scheme, do not panic. When taking out a bounce-back loan, businesses were reminded that there was no personal liability attached. This means that the government will step in to pay the bank if the business fails. This is all providing that you have utilised the money to support your business and not to benefit yourself personally. If you have used the money for personal items, you could be made personally responsible for paying back the loan.
If you’ve taken a bounce back loan and can’t pay it back, you must declare that your business is insolvent and appoint an insolvency practitioner. Following this, the government will begin paying back the loan to the bank. The insolvency practitioner will then inform all the creditors of the company, including the bank that lent the company the bounce back loan and the business will be placed into liquidation.
I can’t pay my bounce back loan as a sole trader…
Unfortunately, when it comes to bounce back loans for sole traders, there is a different level of security when compared to those operating as a limited company. This is due to sole traders having no differentiation between personal and business assets. This can be a worry as it generally means that some personal assets could be taken. However, the scheme did outline that if a sole trader can’t pay the bounce back loan then their house and car could not be taken.
The same financial security is expected from sole traders, with the application process stating that the business must have been ‘financially sound’ before the loan was applied for.
If you can’t pay your bounce back loan as a sole trader, don’t worry, you still have options available, just not as many as a limited company does. The most difficult part for sole traders is that there is no real differentiation between business assets and personal assets as technically none belong to the business. You might be wondering ‘will bounce back loans be written off for a sole trader?’ the truth is that you may have to enter an insolvency process to settle your financial situation. As a sole trader with a bounce back loan, it is very important that you seek advice early from a trusted financial business advisor.
Can I liquidate my company with a bounce back loan?
Liquidating your company will bring a legal and formal end to your business. This means that all unsecured debts, including your bounce back loan, will be written off. This is a very difficult decision to have to make but given the circumstances, it may end up being the most appropriate route.
You can close your company with a bounce back loan and it will remove your unsecured debts. If you have acted responsibly and used your loan correctly then you should experience no issues with this. However, if you have not acted responsibly, you may be liable to pay the full loan back. If you can’t pay the bounce back loan, we would advise seeking help early for the best outcome.