Bounce Back Loans were introduced during the pandemic to give small businesses access to emergency funding quickly and with minimal checks. More than 1.5 million businesses in the UK took them out, borrowing a total of around £47 billion. For many, the loans served their purpose and have since been repaid. For others, repayment has proved far more difficult than anticipated, and the question of what happens if the money simply is not there has become an urgent one.
What a Bounce Back Loan Is
A Bounce Back Loan is an unsecured government-guaranteed loan. The key word there is unsecured, meaning the loan is not secured against your property or assets. The government guarantee means that if a business defaults, the government repays the lender rather than the business owner. This has significant implications for what happens if a business cannot repay.
Personal Liability for Directors
Because Bounce Back Loans are unsecured and government-guaranteed, the lender does not have a direct claim against you personally as a director simply because the business cannot repay. There is no personal guarantee attached to a Bounce Back Loan.
However, that does not mean there are no consequences for directors. Where a business enters insolvency and there is an outstanding Bounce Back Loan, the insolvency practitioner is required to investigate how the loan was used. If the money was used for legitimate business purposes, the position is generally straightforward. If the money was used for something else, withdrawn as salary or dividends in a way that was not justified, or if the amount borrowed was inflated beyond what the business could reasonably support, directors can face personal liability for the misuse of funds and potential disqualification.
The Lending Standards
The loans were issued on the borrower’s self-certification of turnover and eligibility. The government and lenders have been conducting reviews of cases where fraud is suspected, and the consequences of misrepresentation are serious.
If Your Business Cannot Trade Out of the Debt
Many businesses took out Bounce Back Loans in good faith and used them properly, but the trading conditions that followed the pandemic, rising costs and a difficult economic environment have left them unable to repay. If that is your situation, there are a number of routes to consider.
Some lenders will discuss repayment flexibility under the Pay As You Grow scheme, which was introduced to give businesses options including extended repayment terms, interest-only periods and repayment holidays. If you have not explored this with your lender, it is worth doing so before assuming insolvency is the only option.
If the business is not viable and insolvency is unavoidable, a Bounce Back Loan will be treated as an unsecured creditor claim within the insolvency. Provided the loan was used for legitimate business purposes and there was no misrepresentation in the application, the personal position of a director should not be affected by the loan itself.
The Importance of Taking Advice
The difficulty with Bounce Back Loan situations is that the facts matter a great deal. What the money was used for, how the business was run during the period, whether other creditors were treated appropriately, and what decisions were made as the business deteriorated are all factors that an insolvency practitioner will look at. Taking advice before a situation becomes critical gives you the opportunity to understand your exposure and make informed decisions.
We have worked with business owners carrying Bounce Back Loan debt at every stage of the process. We will give you a clear picture of where you stand and what your options are, without pressure. Get in touch and let’s talk through your situation.
Adcroft Hilton: Debt, Insolvency & Bankruptcy Specialists
Helping you make the right choice for your financial future.
