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Bounce Back Loans: Repayments Begin

Posted: 15 Jun, 2021

Last week, thousands of small businesses were due to start repaying their bounce back loans as the 12-month repayment holiday ended for the first borrowers.

When bounce back loans were first launched in May 2020, there was a flurry of early applications from companies seeking support to see them through the lockdown and pandemic restrictions. Overall, 1.5 million small businesses borrowed £46.5 billion in bounce back loans. Repayments on the first loans were due from Monday 7th June.

But research suggests that many will struggle to pay. Mazuma Accountants recently released the results of a survey in which 39% of small businesses said they would struggle to make their repayments.

For the hundreds of thousands of small businesses that will struggle to make their repayments, the ‘Pay As You Grow’ scheme should be explored. The scheme offers flexibility to borrowers in managing their repayments and, so far, around a fifth of borrowers have already asked their banks for more time to pay, with most choosing to extend their loan term from six to ten years. Borrowers needing more time to pay that haven’t already contacted their bank should do so as early as possible. As well as being able to extend the loan from six to ten years, there is also the option to pause interest payments and loan repayments for one six-month period and pay only interest for three six-month periods. It is, however, important to know that the 2.5% interest rate starts after the first 12 months and will continue to be added to loans for up to six years.


What happens if you can’t pay back your bounce back loan?

If, even with the Pay As You Grow scheme, a company can’t make their repayments, the banks may pursue their money in the same way they would any other unsecured loan. This could involve the use of debt collectors, court action and potentially bailiffs turning up at the business’s premises.

What business directors must be especially careful of is not to fall foul of their directors’ duties or to try and avoid their repayments though liquidation. Last month, a Bill was put before parliament that will give the Insolvency Service increased powers to investigate and sanction directors who seek to avoid repayments by dissolving their company. Currently, the Insolvency Service doesn’t investigate Director conduct unless a Company enters into an insolvency process. The change proposed in the Bill is to allow the Insolvency Service to investigate where no insolvency process has taken place and the company has simply been struck off the register. Any directors found guilty of misusing the insolvency process would face sanctions such as a ban from serving as a company director for up to 15 years or even prosecution. The new measures would also prevent directors of dissolved companies from setting up a near identical business.

This Bill follows the Government’s Budget promise to clamp down on any potential fraud in repaying Covid loans. The business secretary Kwasi Kwarteng said the government would “not hesitate to disqualify directors who deliberately leave employees and the British taxpayer out of pocket. Extending powers to investigate directors of dissolved companies means those who have previously been able to avoid their responsibilities will be held to account.”

Of course, if a director dissolves their company for genuine reasons, the Insolvency Service should find no grounds to sanction or prosecute, and the business’s bounce back loan will be repaid to the lender by the government. To be able to prove that there were genuine reasons behind a dissolution, documentary evidence such as minutes from board meetings should be retained as evidence of conduct. They will be able to provide the Insolvency Service with information such as the motive behind taking out a bounce back loan, how the company dealt with the pandemic and why the decision was taken to dissolve the company.

 

TMA UK is part of TMA, a global organisation that represents the interests of turnaround professionals as its members who have the skills needed to assist in these unprecedented times. If you need assistance, please contact our helpline on 0844 804 0116

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