Can a Bounce Back Loan be written off?

What happens to my Bounce Back Loan if I can’t repay it?

Although your Bounce Back Loan cannot be written off whilst your company is still trading, you may be able to take advantage of the scheme introduced by the Chancellor during the height of the Covid pandemic.

Bounce Back Loans are only written off if a company has to be liquidated due to extreme financial distress. The government did provide a guarantee for the Bounce Back Loan Scheme (BBLS), but this guarantee was to lenders.

Your company is still expected to repay the loan even if its financial situation is poor, and it can’t afford the repayments. So what can you do to mitigate negative cash flow and provide your business with a financial breathing space?

Pay As You Grow (PAYG) scheme

The Pay As You Grow scheme can help struggling businesses in three ways - these can be used as standalone measures or as a combination:

• Extending the term of the loan to 10 years – the original maximum loan term was six years. The low fixed interest rate of 2.5 per cent would apply for the extended term, offering you more certainty in budgeting.
• Interest only payment for six months – you can choose to make interest-only payments on your Bounce Back Loan for a period of six months, and this option can be taken three times during the course of the loan term. 
• Payment holiday of six months – You can take a payment holiday of six months, but this is available only once during the term of the loan.

Clearly, all of these options will help your cash flow on a month-to-month basis. Bear in mind, however, that you’ll still need to repay the loan as a whole and will pay more in interest overall. The loan term will also extend according to the length of your payment holiday if you choose to take one.

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Bounce Back Loans and company liquidation/dissolution

If your company has suffered severe financial difficulties, liquidation may be your only option. In this case, business loans that aren’t personally guaranteed by a director can be written off.

Bounce Back Loans didn’t require a personal guarantee, so the loan will be written off during the liquidation process and the lender can take advantage of the government’s guarantee to recoup their money.

Company dissolution is a process that’s only available for solvent companies so it wouldn’t be appropriate to try to dissolve your company whilst a loan remains outstanding. Your bank would object to the application to Companies House even if you tried this route, which could trigger an investigation into your actions.

Other potential options when you can’t repay your Bounce Back Loan

It’s important to seek advice from a licensed insolvency practitioner (IP) if you’re having difficulty meeting your Bounce Back Loan repayments. UK Liquidators can explain your best options in more detail, and support you in dealing with your company’s financial distress.

It may be that you’re eligible to enter into a formal insolvency procedure that would protect you from winding-up, and help the business recover. One such option might be a Company Voluntary Arrangement (CVA), which makes your unsecured debts more affordable as a whole.

Additionally, HMRC operates a Time to Pay scheme for eligible businesses, which would relieve some of the pressure on your cash flow through a formal instalment plan to repay tax arrears.

For more information on repaying Bounce Back Loans, and your potential options, please get in touch with our partner-led team. We can arrange a same-day consultation free-of-charge, and operate across a network of local offices throughout the UK.