As the coronavirus crisis continued to cause unprecedented business interruption across the country, the government announced a series of measures aimed at keeping companies afloat despite the restrictions on trade.
One of these initiatives was a government-backed Bounce Back Loan which allowed all eligible businesses to take out borrowing of up to £50,000 without having to provide a personal guarantee. Bounce Back Loans became available in March 2020, with no repayments having to be made by the borrowing company for the first 12 months.
With many companies now approaching the one-year anniversary of taking out their Bounce Back Loan, however, some are now discovering that adding this additional outgoing is stretching their cash flow to breaking point. If you are in this position, you may be wondering where you stand and what the implications are if you cannot pay your Bounce Back Loan.
As with the vast majority of loans, Bounce Back Loans are designed to be repaid through a series of monthly payments made directly to the lender. Bounce Back Loans differed in that a 12-month payment holiday was automatically applied to the borrowing, however, once this ended, it was the borrowing company’s responsibility for ensuring the loan was repaid as per the initial agreement.
The problem, however, is that when companies first took out these Bounce Back Loans, the future situation was unclear. Very few would have predicted lockdown measures and local restrictions would have stayed in effect for so long. This has meant that while these loans may have been taken out in good faith, some businesses are now finding themselves in the position where trade has not yet returned to pre-pandemic levels, meaning repaying the borrowing as planned is simply not possible.
In order to help these companies, the government introduced a scheme known as Pay As You Grow (PAYG) which is designed to help those businesses who need additional help and time to repay their Bounce Back Loan.
The PAYG scheme allows a company who has taken out a Bounce Back Loan, three main ways of reducing the monthly financial burden if they are struggling to find the money to repay what they owe. If you cannot afford to repay your Bounce Back Loan, here is how the PAYG scheme could help:
1. The chance to delay repayments for six months. This is on top of the first-year payment holiday which you will have been given when you took out the Bounce Back Loan. You do not need to have made any repayment towards your Bounce Back Loan in order to qualify.
2. You can lengthen the term of the Bounce Back Loan from six years to ten years. By doing this, you can halve your monthly repayments which could make a huge difference to your cash flow during this time.
3. You can ask to make interest-only payments for six months. This will lessen the amount of your monthly repayment for these months, while also ensuring you are not paying any additional interest as you would if you took a payment holiday.
While the flexibility offered by the PAYG scheme will give some companies the breathing space they need to repay their Bounce Back Loan, for others, this will simply not go far enough. It may also be the case that the Bounce Back Loan is just one of several loans or finance agreements the company has, and trying to repay them all is a step too far. So, what happens if your company is unable to pay the Bounce Back Loan, and can you be held personally liable for this debt?
One of the main benefits of the Bounce Back Loan was that the government provided the banks with 100% security for the money they lent. From the company’s perspective, this meant that no personal guarantee had to be provided to secure the borrowing. Instead, if the company is not able to repay the money owed on the Bounce Back Loan, the bank will turn to the government for repayment rather than the company director themselves.
While this security should provide some comfort to company directors, you should be aware that this government guarantee will only come into effect if the company is declared insolvent. While your company is still trading and is an active company on Companies House, you remain responsible for repaying the Bounce Back Loan.
If you believe your company will struggle to repay its Bounce Back Loan, but it is still a profitable business, you can consider a range of restructuring and refinancing options that could help ease your cash flow in the immediate future.
For many, the Bounce Back Loan will be one of several debts the company is holding. If this is the case, you can look at entering into negotiations with your other creditors in order to lower your monthly outgoings to a more affordable level.
HMRC arrears can often be incorporated into a Time to Pay (TTP) arrangement, which is a payment plan entered into directly with HMRC. As long as you can adequately prove your case, you may be given an additional 12 months in which to clear any owed taxes. You can present your proposal to HMRC yourself, or alternatively, the experts at UK Liquidators can do this on your behalf.
For those who are juggling a number of loans, credit cards, and supplier debts, a formal process known as a Company Voluntary Arrangement (CVA) may be more appropriate. A CVA allows you to make just one monthly payments towards your debt to a number of creditors for a set number of years. A CVA can only be entered into under the guidance of a licensed insolvency practitioner, and once all creditors agree to the terms, the agreement becomes legally-binding on all parties. This provides you with long-term certainty over your debt, however, you must be able to prove that your business is viable as a trading entity before creditors will give their consent to the proposal.
For the purposes of liquidation, a Bounce Back Loan is treated in the same way as any loan or finance agreement. This means that should the company become insolvent and needs to enter a formal liquidation process, the Bounce Back Loan will be included.
The liquidation of an insolvent company can be done in one of two ways. The first is to wait for a creditor to force the company into compulsory liquidation; this requires a court order and can be a lengthy process. The other option, is for directors to initiate the liquidation of their company themselves. This is done through a Creditors Voluntary Liquidation (CVL).
A licensed insolvency practitioner will be appointed to handle the entire process, including identifying company assets, selling these for the benefit of creditors, before distributing the proceeds according to a set hierarchy.
The end result of the liquidation is that the company will cease to exist as a legal entity, and any debt which remains after this point will be written off unless this has previously been secured with a personal guarantee. This includes the Bounce Back Loan. As this type of borrowing did not require the security of a personal guarantee, you will not be held personally liable for repaying these funds so long as you have used them in an appropriate manner.
When Bounce Back Loans were launched, they were done so in order to provide as much help to as many businesses as possible. As every company was facing its own challenges at the time, the rules simply stated that the loan must be used to provide an economic benefit to the business.
For some, this could have been used to improve working capital, to purchase machinery, equipment or stock, for modifications to allow the business to adapt to its changing landscape, or to supplement staff wages. The main criterion was that the Bounce Back Loan was to be used within the business; it was not meant for personal use. Those found guilty of misusing their Bounce Back Loan could be held personally liable for repaying them should the company be unable to do so.
If your company is experiencing financial difficulties and you are in any doubt as to whether you may have misused your Bounce Back Loan, you should make it a priority to seek expert help and advice. UK Liquidators have over 100 fully qualified and highly experienced licensed insolvency practitioners who will be able to evaluate the position of your company and help you understand your options. They will also be able to talk you through the possible personal ramifications of liquidating the company if you have an outstanding Bounce Back Loan that you have used inappropriately.
Call our expert team today for help and advice on your Bounce Back Loan on 0800 063 0495.
If you are considering liquidation for your limited company, taking advice from a licensed insolvency practitioner can help you understand your options.
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If you are considering liquidation for your company, taking expert advice at an early stage is crucial. At UK Liquidators, our team of licensed insolvency practitioners are committed to providing limited company directors with the help and advice they need to make an informed decision.
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