Bounce Back Loans were a much needed lifeline for many businesses during the pandemic, but for some businesses, the loan simply was not enough to keep them afloat.
So, what can you do if your company is unable to repay its Bounce Back Loan?
Will bounce back loans be written off?
If your company is struggling to repay its Bounce Back Loan, your first action may be to attempt to write it off. However, this is not so easy to do.
Although the Government guarantees the loan, it was only given with the expectation that it is repaid. The Government will only pay off the loan in the event that repayment from your company is impossible.
What happens if a company cannot repay a bounce back loan?
If it is the case that repayments are impossible, the bank will turn to the government to get the loan back. However, companies must enter certain insolvency proceedings for this to happen, such as Liquidation.
During Liquidation, a BBL is turned into unsecured debt and will be written off and repaid to the banks by the government.
However, if during the insolvency process, the appointed Insolvency Practitioner (IP) found that funds were not used “to provide an economic benefit to the business”, directors can be held personally liable for the remaining repayments of the loan.
Read our guide on Bounce Back Loans and personal liability to find out more.
Can a company write off its Bounce Back Loan?
Companies cannot write off a BBL. If you can still afford to pay your loan, but the current payments are causing issues with your cash flow, you can negotiate with your lender to increase the repayment period from 6 to 10 years under the Pay As You Grow (PAYG) scheme.
You can also take a repayment holiday, but the loan will not be written off.
Can you write off a bounce back loan if you are self employed?
Despite the fact BBLs were government backed, if you’re self employed and can’t repay it, the loan will not be automatically written off.
The only way you can write off a self-employed sole trader’s BBL debt is to enter a formal insolvency process.
If you apply for an Individual Voluntary Agreement (IVA), the BBL is treated as unsecured debt, which can be included in the arrangement.
Once the self-employed individual has repaid the agreed amount, the remaining amount of unpaid, unsecured debt is written off.
Can you write off a bounce back loan if you are a sole trader?
If you are a sole trader, the exact same applies to you as someone who is self-employed.
Unfortunately, as a sole trader, if you cannot pay back your BBL and an IVA is not a viable option, you do not have the protection of a limited company.
Legally speaking, there is no distinction between personal and business assets; therefore, you may be held personally liable for the amount owed.
Alternatives to writing off a Bounce Back Loan
It was predicted that some businesses would simply not be able to repay their BBL, despite the support it provided. In light of this, the government created the PAYG scheme as an alternative to companies going through the liquidation process.
The PAYG scheme offered three main options:
- An extension of four years, taking the total repayment period to 10 years. The interest rate would remain at the outlined 2.5%, meaning companies would end up paying more interest overall.
- A period of six months can be used to make interest only payments, meaning that smaller payments will be made during this time. This option can be used up to three times throughout the term of your loan.
- A six month repayment holiday can be added onto your initial 12 month payment holiday. This means that you will not make any repayments during this time, and it can be used in conjunction with the three interest only payment terms.
Can I strike off my company with a Bounce Back Loan?
Simply striking off a limited company from the Companies House register can be viewed as a shortcut to liquify a business, with the hope that it will somehow slip under HMRC’s radar and be undetected.
However, you cannot dissolve, or strike off, a company with debt. Insolvency practitioners have been given more power to clamp down on BBL misuse, with the power to ban directors for up to 15 years if they believe there has been issues of misfeasance.
No matter how tempting it may be to use the short cuts, we always suggest looking at your position squarely with the help of insolvency professionals.
At The Insolvency Experts, our team of expert advisors are here to provide you with the help and advice you need during challenging financial times. We will take the time to assess your situation and help you understand all the options open to you.
Contact us today to see how we can help you.