The U.K. government introduced Bounce Back Loans as part of the Bounce Back Loan Scheme. These loans came as a response to the economic impact of the Coronavirus pandemic, and aimed to support small and medium companies through the worst of it, to varying levels of success. However, although the government guaranteed Bounce Back Loans, the time has come for companies to make repayments. This has led directors of some companies to ask the question – will Bounce Back Loans become grants?
In this article, Clarke Bell will answer this question, provide an overview of Bounce Back Loans, and discuss what you can do if you’re struggling to repay your loan.
What is a Bounce Back Loan?
Bounce Back Loans were a type of loan introduced to help shelter companies from the economic effects of the Coronavirus pandemic. They were primarily offered to small companies to cover important business expenses, though many medium companies also received a loan. Bounce Back Loans allowed companies to borrow between £2,000 and £50,000, depending on the income of the company. Moreover, the government guaranteed these loans, making for a relatively low-risk option for both borrowers and lenders.
Although certainly beneficial for borrowers, Bounce Back Loans were still precisely that – loans. Companies were expected to make every effort to repay their loan, and lenders were expected to use every reasonable method of recovering the debt. If both parties exhaust every avenue regarding repayment, then the government would step in. However, this requirement to repay the loan is easier said than done for some companies.
The effects of Coronavirus, and the following lockdown measures, lasted much longer than anyone expected. This, coupled with the fact that some recipient companies should never have been considered for a Bounce Back Loan in the first place, has made repayment a pipe dream for some directors. For this reason, directors of such companies ask, “Will Bounce Back Loans become grants?”.
Will Bounce Back Loans become grants?
As the Coronavirus pandemic has waned and the economy has been largely relieved of related pressures, the time for companies to make repayments has come. However, directors of some companies simply cannot afford to make repayments, owing to the severe impact on their finances, a failing business model, or a range of other reasons.
Unfortunately for directors of such companies, repayments must be made, as Bounce Back Loans will not become grants. As part of the Bounce Back Loan agreement, it was stipulated that you would repay the amount borrowed in full, and you will be held to this promise. Failure to repay a Bounce Back Loan within the time frame stated in your agreement could result in your company being investigated for misconduct. This investigation will be carried out by the Insolvency Service, and can result in a range of penalties should evidence of misconduct be discovered. These penalties include the following:
- Disqualification of a director’s license for a period of up to 15 years, including management positions in other companies.
- Personal liability for company debt
- Prison sentences
Although you are obliged to make Bounce Back Loan repayments, you do have certain options at your disposal to make the task easier.
Options for handling Bounce Back Loan debt
Although Bounce Back Loans will not become grants, and so must be repaid in full, there are several methods directors can use to alleviate the financial pressure their companies face.
Pay As You Grow Scheme
The Pay As You Grow (PAYG) Scheme is a series of tools implemented by the government to make Bounce Back Loan repayment easier. This scheme came as a response to the many companies which were struggling to make repayments, and which faced the very real possibility of collapsing without additional aid.
If your company is in this position, you may be eligible to use the PAYG Scheme to get your company back on the right track.
If you choose to use the PAYG Scheme, the first of your options is to extend your loan’s term. Providing you’re eligible, you can add four years to your term, bringing it from six to ten. By doing this, you will spread the pressure on your cash flow over these additional four years, with monthly payments dropping significantly. As a tradeoff, interest will apply to these additional four years, increasing the overall amount payable.
Alternatively, you could choose to take a six-month repayment holiday. During this time, you will not have to pay a penny, giving your company some much-needed time to recover. However, interest will apply to this six-month period, increasing the overall amount you must pay.
The third option available under the PAYG Scheme is a six-month period of interest-only payments. During this time, you will only pay interest on your Bounce Back Loan. This has the benefits of decreasing pressure on your company’s finances and preventing the overall amount from growing. That said, you will still pay more in the long run.
If the PAYG Scheme cannot get your company back on track, you may need to consider insolvency procedures. One such procedure is a Creditors’ Voluntary Liquidation (CVL). Under this procedure, directors can enjoy a range of benefits for both themselves and their company – whilst also fulfilling their legal obligations. To begin with, it is a voluntary procedure, one that allows the appointment of an insolvency practitioner of the directors’ choosing. This insolvency practitioner will take on the role of liquidator. In this role, they will identify any company assets, dispose of them for the best price, and use the proceeds to repay debts, including Bounce Back Loans. Once all possible distributions have been made, the company will be wound up and removed from the Companies House register.
The CVL process also grants a series of legal protections:
- The company will be protected from any legal proceedings upon the commencement of the procedure. This essentially protects the company from compulsory liquidation and the negative consequences that follow.
- As the procedure is voluntary and indicates a willingness of the directors to act in the interests of creditors, a CVL acts as a great defence against accusations of misconduct.
- Once the company has been wound up, any company debts that remains outstanding will be written off, including Bounce Back Loan debt.
However, if any loans are secured by a personal guarantee, the signatory will take personal responsibility for the debt, though this is not a concern in the context of Bounce Back Loans.
Clarke Bell can help
If your company is struggling to repay its Bounce Back Loan, or any other business debt, give us a call (on 0161 907 4044).
Our friendly and professional team will give you (free) advice on the best way for you to deal with your problem.
We have more than 28 years of experience in helping directors find solutions to their company’s debt problems. We can do the same for you.
Contact us today to get your company debt problems sorted out once and for all. Then you can move on, with a fresh start.
(And remember, the Bounce Back Loans will not become grants.)