Thousands of businesses across the UK have taken out a government-backed Bounce Back Loan as part of the Chancellor’s scheme designed to help small to medium sized businesses that have been impacted by the Covid-19 pandemic.
However, as the time comes for businesses to start paying back the loan, many are facing further struggles and even insolvency.
In this guide, Clarke Bell look at the Bounce Back Loan scheme and what you need to know if you think that you’re not going to be able to pay it back.
What is the Bounce Back Loan Scheme?
The Bounce Back Loan Scheme was brought in by the government to help small to medium sized businesses that were facing financial hardship due to the pandemic.
The scheme was introduced to help businesses that were originally excluded from the government’s Coronavirus Business Interruption Scheme, and intended to give businesses a quick cash injection and keep them going during difficult times.
The Bounce Back Loans are interest free for the first 18 months. Following this, interest rates stand at 2.5% each year. Businesses can repay the loan over 10 years, or less if they wish to pay the loan back quicker.
In early 2021, the government announced key changes to the scheme to make repayments more flexible. This was designed to make it easier to pay the loans back.
Following these changes companies can now:
- delay their loan repayments by an additional 6 months
- lengthen the loan from 6 years to 10 years, at the same interest rate
- make interest-only payments for 6 months.
Despite these changes being introduced to help make it easier to pay the loans back, the reality is that many businesses will still struggle. As a result, many industry experts are expecting company insolvencies to rise steeply.
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Business Insolvency: What to do next
If your business is continuing to face financial difficulties and is likely to struggle to pay back its Bounce Back Loan, you will need to know what to do.
The first step is to seek the advice of your accountant and / or a licensed Insolvency Practitioner. It is important to do this as soon as possible, to ensure more options remain open to you.
Option 1: Company Voluntary Arrangement (CVA)
For directors of an insolvent company who are looking to rescue their business, a CVA can be a good option.
A company that enters into a Company Voluntary Arrangement will need to appoint a licensed Insolvency Practitioner who will lay out a formal agreement with the company’s creditors to find a way to turn the business around.
This is a good route for businesses to take to turn their business around and will mean they avoid going into liquidation.
Option 2: Liquidation
Another option for a struggling company is liquidation through the Creditors’ Voluntary Liquidation (CVL) process.
A Creditors’ Voluntary Liquidation is a legal insolvency process that liquidates a company. When the company’s assets and liabilities have been dealt with through the liquidation process, it is then dissolved, meaning it is closed down and struck off the Companies House Registrar.
A CVL is completely voluntary and is a sensible option for an insolvent company that doesn’t have sufficient funds to repay its debts. By taking this route, the company can avoid being forced into compulsory liquidation.
Despite the company being liquidated due to debts, this is one of the best routes to take for struggling businesses with little chance of turn-around, as it acknowledges your duty as a director to your creditors. This will mean you will also avoid the risk of wrongful trading.
What’s more, you will retain some control of the process as you will be able to appoint the Insolvency Practitioner who you want to carry out the liquidation.
Company directors should consider a Creditors’ Voluntary Liquidation when:
- the company no longer has sufficient funds and cannot pay its bill or debts
- the business is no longer viable
- the business is being threatened with a winding-up petition by creditors who are owed money and are looking for a way of retrieving what they are owed.
Companies that have taken out a Bounce Back Loan can close their insolvent company with a CVL because a Bounce Back Loan is classified as a debt like any other.
Take the next steps with Clarke Bell
With many businesses continuing to struggle amidst the impacts of the coronavirus pandemic, it’s essential that you know what options are open to you.
Whether you are looking at options for business rescue, through a Company Voluntary Arrangement, or considering liquidating your company through Creditors’ Voluntary Liquidation, we can help you.
We have a friendly team of experienced insolvency experts who will work closely with you (and your accountant) to get you on the right track. We have over 25 years’ experience helping company directors across the country.
Our experts can help you turn your business around with a CVA, or liquidate it with a CVL.
To see how we can help you, get in touch today. Whether you know what route you want to take, or you are looking for some initial advice, we can help you.