Is there a Bounce Back Loan Loophole? What You Need to Know

If you’re asking yourself “is there a bounce back loan loophole?” or “will bounce back loans be written off? then read on. The UK government introduced the Bounce Back Loan Scheme (BBL) to provide financial support for small businesses struggling with cash flow. The scheme allowed eligible businesses to borrow up to £50,000 with no interest or repayments for the first 12 months. However, many companies are unable to repay their outstanding BBLs and this has led to many businesses seeking to restructure their debt or consider opting for creditors’ voluntary liquidation.

The future of these loans is uncertain – will banks and creditors expect businesses to pay them back? will bounce back loans be written off? is there a bounce back loan loophole? These questions are on the minds of many business owners and directors who now find themselves in a difficult position with overdrawn directors loan accounts and personal guarantees.

At Company Doctor, our team specialise in helping insolvent companies navigate the liquidation process.

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Is there a bounce back loan loophole and will they be written off? Understanding the Circumstances in specific situations.

BBLs were a lifeline for many struggling businesses during the pandemic. These loans offered quick and easy access to finance, with no repayments due for the first 12 months. However, there are certain circumstances under which a BBL can be written off entirely:

Death or incapacity may lead to the loan being written off.

If a borrower who has taken out a BBL passes away or becomes incapacitated, their estate may be able to apply for the loan to be written off. This is because it would not be fair or reasonable to expect their family or dependents to repay the loan on their behalf. However, this is not guranteed. It is important to take action early and seek professional advice.

Note that this is only likely to apply if the borrower was self-employed or had a small business at the time of their death/incapacity. If they were an employee of a company, then their employer would still be responsible for repaying any outstanding debt.

The loan can also be written off if the borrower is declared bankrupt.

If a business owner declares bankruptcy, any outstanding debts (including BBLs) will usually be included in their bankruptcy proceedings. Will bounce back loans be written off? Well, this will depending on the outcome of the bankruptcy proceedings and assets available in the insolvent’s estate. It is possible that some or all of the debt could be written off entirely.

However, it’s important to note that bankruptcy should always be considered as a last resort.

In some cases, the lender may agree to write off the loan if the borrower is facing financial difficulties.

If a borrower with a BBL is facing financial difficulties and unable to meet the repayments, they should immediately contact their lender who may agree to write off part or all of the BBL debt if they believe it is in the best interests of both parties. Will bounce back loans be written off? This is by no means guaranteed. Lenders will want to consider other options, such as restructuring the loan or offering a repayment holiday, before agreeing to write off any debt. Borrowers may therefore be forced to consider insolvency options.

It’s important to understand the circumstances under which a bounce back loan can be written off.

It’s important to remember that BBLs are still debts that need to be repaid in full (unless they meet one of the criteria outlined above).

Impact of Writing Off Bounce Back Loans on Sole Traders

Relief for Struggling Sole Traders

Sole traders were hit hard by the economic impact of the pandemic. Many were forced to close their businesses or reduce their operations, resulting in a significant loss of income.

Writing off BBLs can provide much-needed relief for sole traders struggling with debt. It means that they will not have to pay back the loan amount and will be free from any financial obligation towards it. This can help them manage their cash flow better and focus on rebuilding their (new) businesses without worrying about repaying loans.

Negative Impact on Credit Score and Future Borrowing Opportunities

While writing off BBLs can provide immediate relief, it may also negatively impact a sole trader’s credit score and future borrowing opportunities. A default or write-off on a credit report could make it difficult for them to obtain credit in the future. This could hinder their ability to grow their businesses or access financing when they need it.

Moreover, lenders may view borrowers who have had loans written off as high-risk customers and charge higher interest rates or refuse credit applications altogether. Therefore, sole traders should carefully consider the potential long-term consequences before opting for loan write-offs.

No Plans Yet Announced by Government

The government has not yet announced any plans to write off BBLs. While some politicians and stakeholders have called for debt forgiveness schemes, there is no clear indication whether this will happen anytime soon.

Although writing off loans may seem like an attractive option in the short term, it is important for sole traders not to rely solely on this possibility when making financial decisions. They should consider other options such as loan repayment plans or debt management schemes to avoid damaging their credit score and future borrowing opportunities.

Impact of Writing Off Bounce Back Loans on Limited Companies

Affect on Credit Rating of Companies Registered with Companies House

Writing off BBLs can have a significant impact on the credit rating of limited companies registered with Companies House. When a company receives a loan, it is expected to repay it within the agreed-upon timeframe. Failure to do so can lead to default, which is reported to credit reference agencies and negatively impacts the credit score of the company.

This can make it more challenging for companies to secure future financing or obtain favorable terms on loans, leases, or other financial products. It may also affect their ability to establish supplier relationships since many suppliers conduct credit checks before extending payment terms.

Writing off BBLs could signal financial instability and mismanagement to stakeholders such as shareholders, customers, and employees. This could damage the reputation of the company and make it less attractive to potential investors.

Personal Liability for Company Directors

Company directors are responsible for ensuring that funds obtained from BBLs are used appropriately and in accordance with the terms and conditions set by the lender. Misuse of these funds could result in personal liability for company directors.

For example, if a director uses loan proceeds for personal expenses or transfers them into another business account without authorisation, they could be held liable for repayment. This could result in legal action against them personally and reputational damage both personally and professionally.

Directors should ensure that proper accounting records are kept regarding how loan proceeds are spent. They should also consider seeking professional advice if they are unsure about how best to allocate funds received from these loans.

Struggles with Loan Repayment Leading to Insolvency

Many companies that received BBLs have struggled to make repayments due to ongoing economic challenges. This has led to many borrowers considering insolvency and liquidation.

Insolvency occurs when a company’s liabilities exceed its assets or when it is unable to pay its debts as they become due. Liquidation is the process of selling off a company’s assets to repay its creditors and has significant consequences for the directors and employees of the company, as well as its suppliers and customers.

Directors should ensure that they are aware of their obligations under insolvency law and seek professional advice from a licensed insolvency practitioner if they suspect that their company may be at risk of insolvency.

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What to Do If Your Company Is Insolvent with a Bounce Back Loan

Seek Advice from a Licensed Insolvency Practitioner (IP)

If your company can’t repay its BBL, it is crucial to seek advice from a licensed IP who has the necessary expertise and experience to guide you through the insolvency procedure and formal liquidation process.

An IP will assess your company’s financial situation and advise on the best course of action for your business. They can help you understand your legal obligations as a director, including how to manage creditors and employees during the insolvency process.

Alternative Options for Solvent Companies

If your company is solvent but still struggling financially, there may be alternative options available before entering into a formal liquidation process. These include:

• Negotiating payment plans with creditors
• Restructuring debt
• Refinancing existing loans
• Seeking government support schemes

It is important to seek professional advice before making any decisions about your company’s financial future. A licensed IP can advise you on the pros and cons of each option and recommend the best course of action for your business.

Acting Quickly in Insolvency Situations

If your company is insolvent, it is crucial to act quickly. Delaying the process can lead to further financial difficulties, including legal action being taken against directors for wrongful trading or fraudulent activity.

By seeking advice from a licensed IP, you can take control of the situation and work towards achieving the best outcome for all stakeholders involved.

Risks of Closing a Limited Company with an Outstanding BBL

Personal Liability for the Debt

Closing a limited company with an outstanding BBL can have severe consequences, including personal liability for certain debts such as overdrawn directors loan accounts or where personal guarantees have been given.

Under the terms of a BBL agreement, directors were not required to provide personal guarantees to secure the loan. This means that if the company cannot repay the loan, lenders cannot pursue individual directors to recover their money. Personal guarantees may have been provided where the company has obtained a CBIL; so please check the terms of your loan agreement carefully.

Legal Action Against Directors

Directors may face legal action if they try to dissolve or strike off their companies without repaying outstanding BBLs. If your business is insolvent and you believe that liquidation is your only option, you must take appropriate steps to ensure that all creditors are treated equally under insolvency laws.

If you choose to close your business without repaying your BBL in full or making arrangements with lenders to pay it back over time, you could be accused of wrongful trading or fraudulent trading. In these cases, directors can face disqualification from acting as directors again and even criminal charges.

It is essential to seek professional advice before taking any steps to close down your business if there are outstanding BBLs involved. IPs can help guide you through this process while ensuring compliance with relevant regulations.

Government Policy on Writing Off Bounce Back Loans

The UK government has made it clear that it will not write off any outstanding BBLS under any circumstances. Although some borrowers had hoped that the government would eventually forgive these loans, this is unlikely to happen.

The government has made it clear that BBLs were designed to provide financial support for businesses affected by the COVID-19 pandemic. Still, they are not a grant and must be repaid in full. Therefore, directors should not count on any government assistance when closing their companies with outstanding BBLs.

Options for Those Who Cannot Repay Their Bounce Back Loan

What to Do When You Cannot Repay Your Bounce Back Loan

If you are one of those struggling with monthly repayments or have unmanageable debts, here are some options available to you:

Option 1: Repayment Holiday

If you are struggling with monthly repayments, you may be eligible for a repayment holiday under the Pay As You Grow (PAYG) scheme operated by your bank. A repayment holiday is an agreement between you and your lender that allows you to pause your loan payments temporarily. During this period, interest will still accrue on your loan balance, but you won’t need to make any payments.

To apply for a repayment holiday, contact your lender and explain your situation. Your lender will then assess whether you are eligible for the scheme based on its criteria.

It’s worth noting that taking a repayment holiday will extend the term of your loan and increase the total amount of interest payable over time. Therefore, it’s essential to consider all options before applying for this scheme. Will bounce back loans be written off? This is unlikley, making insolvency an attractive solution of the debt cannot be restructured.

Option 2: Creditors Voluntary Liquidation (CVL)

Creditors voluntary liquidation (CVL) is an option worth considering for many businesses. A CVL is an insolvency procedure where directors voluntarily choose to wind up their company by appointing an IP as liquidator.

The liquidator’s primary role is to sell off assets and distribute funds among creditors in line with their statutory entitlements. Any remaining debt after selling off assets will be written off.

It’s essential to seek professional advice from an IP before considering this option.

For more information on CVLs and the process see our page.

More Options

If you cannot repay your BBL, there are several other options available to you. You can contact your lender and discuss the possibility of restructuring your loan or extending its term.

Alternatively, if you are self employed, you can seek assistance from debt management companies who will negotiate with lenders on your behalf. However, be cautious as some may charge high fees for their services.

Moreover, if you’re unsure about which option is right for you or need more advice on managing your debts related to BBLS loans, seek guidance from a qualified financial advisor or IP.

Key Points to Remember About Writing Off Bounce Back Loans

If you have taken out a BBL, you may be wondering whether it will ever be written off. Here are some key points to keep in mind:

Understanding the Circumstances When a Bounce Back Loan Scheme Debt Can Be Written Off

BBLs can be written off if your business becomes insolvent or enters liquidation. In these cases, the government will cover the outstanding balance of your loan.

Impact of Writing Off Bounce Back Loans on Sole Traders

For sole traders who have taken out a BBL, having it written off could mean that they are personally liable for any remaining debt. This could lead to bankruptcy and personal financial ruin.

Impact of Writing Off Bounce Back Loans on Limited Companies

Limited companies that have their BBLs written off may face difficulties obtaining credit in the future. This is because lenders may view them as higher risk borrowers.

What to Do If Your Company Is Insolvent with a Bounce Back Loan

If your company is insolvent and has a BBL, you should seek professional advice from an IP. They will be able to guide you through the process of liquidation and ensure that your affairs are handled correctly.

Risks of Closing a Limited Company with an Unpaid BBL

Closing down a limited company with an unpaid BBL can result in legal action being taken against you by creditors. It’s important to seek professional advice before taking any action.

Options for Those Who Cannot Repay Their Bounce Back Loan

If you cannot repay your BBL, there are options available such as restructuring or refinancing. It’s important to speak with your lender as soon as possible to discuss these options.

In conclusion, while BBLs provided much-needed relief during difficult times, they also came with risks. It’s important to understand the circumstances under which they can be written off and to seek professional advice if you are struggling to repay your loan. Remember, taking on debt is a serious matter and should not be taken lightly.

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References

The primary sources for this article are listed below.

Bounce Back Loan Scheme (BBLS) – British Business Bank (british-business-bank.co.uk)

Details of our standards for producing accurate, unbiased content can be found in our editorial policy here.