I’ve received a Bounce Back Loan Demand Letter from the Bank

The Bounce Back Loan Scheme (BBLS) was introduced in May 2020, and helped businesses to survive the severe financial impact of Covid. It bolstered cash flow and supported day-to-day business operations, but many businesses have struggled to meet their Bounce Back Loan repayments.

The government guarantee provided to the scheme applied to lenders rather than businesses, so if you’ve received a Bounce Back Loan demand letter from your bank, you may be wondering how to proceed.

The corporate structure protects you from personal liability

It’s important to understand that as a company director you’re not personally liable for your company’s debts. The corporate structure means that the business is a separate legal entity, and in the majority of cases, its finances are distinct from those of its directors.

Unless there has been misuse of the loan, you’re protected by the ‘veil of incorporation’ when it comes to business borrowing. So what are some examples of ‘misuse’ in terms of the Bounce Back Loan Scheme?

What constitutes misuse of a Bounce Back Loan?

These are a few examples of how a Bounce Back Loan might be misused:

Using the money for personal purposes

A Bounce Back Loan was intended to be used ‘for the economic benefit of the business,’ such as paying suppliers, employee wages, commercial rent, or day-to-day operational expenditures to keep the business running. This means it will be deemed misuse if you’ve used the Bounce Back Loan for personal purposes.

Overstating your business turnover on the loan application

The maximum allowable Bounce Back Loan amount was based on up to 25% of business turnover. This means that if you significantly overstated your turnover on the loan application, it could be viewed as being against the rules of the scheme.  

Giving the funds to a family member/third party

Handing the funds from your Bounce Back Loan to a family member or other third party contravenes the basic requirement to use it for business purposes.

Are banks speculatively sending out these demands for payment?

On occasion some banks, such as Santander, appear to be sending out speculative letters to chase Bounce Back Loan arrears, to see if companies will pay. These letters seem to be automated after three months of missed repayments.

If you’ve received a Bounce Back Loan demand letter from your bank, it’s worth considering whether it could be a speculative letter, but also advisable to obtain professional advice from a licensed insolvency practitioner (IP).

This professional guidance will be key in making the right move, as the IP will be able to base their assessment of the letter on your business’ individual circumstances.

Directors aren’t typically liable for business loans

The situation around Covid financing is complex, but it’s important to know that under normal circumstances you aren’t liable to repay business funding as a limited company director.

If your business enters insolvency, the protection provided by the corporate business structure can be removed should misconduct or misappropriation of funds be found. The letter you’ve received may simply be a speculative attempt by your bank to recover the money, however.

Seek professional help

It’s important that you don’t ignore the letter, and that you seek a professional viewpoint. UK Liquidators are insolvency experts and can provide reliable guidance if you’ve received a letter of demand in relation to your Bounce Back Loan.

Please get in touch to arrange a free, same-day consultation so we can ensure you understand your options and the potential ramifications. We operate a broad network of local offices throughout the UK, so you’re never far from the professional support you need.