What happens if my business is unable to repay a Bounce Back Loan?
Bounce Back Loans first became available in March 2020. They were intended to support UK businesses through the worst of the Coronavirus pandemic. No repayments were required in the first 12 months, and borrowers have subsequently been given the option to delay their repayments for a further six months.
Sadly, many businesses which took advantage of the scheme have continued to struggle and cannot afford to make the repayments which are now falling due. If your company cannot repay its Bounce Back Loan you will need to consider where you stand, and what the available options are.
What happens if my company cannot pay its Bounce Back Loan?
If your company is unable to pay what it owes, as it falls due, it is legally insolvent. This applies to all company debts, not just Bounce Back Loans. If your company is insolvent, it is possible for the business to recover, but this is only likely if you take swift action based on professional advice.
If you have any concerns that your business may be insolvent, then you should seek advice from a Licenced Insolvency Practitioner.
What options do I have if I cannot repay a bounce back loan?
Consider what support is still available
Pay As You Grow (“PAYG”) was announced in February 2021 and allows Bounce Back Loan borrowers to tailor payments according to their individual circumstances. Eligible businesses now have the following options:
- An extension of the loan term from 6 years to 10 years, retaining the fixed rate of 2.5%
- A single repayment break of up to six months
- Repaying interest only on the loan for up to 6 months, up to 3 times during the term
In addition, The Recovery Loan Scheme aims to help businesses access loans and other kinds of finance so they can recover after the pandemic. The amount offered and the terms of the loan are at the discretion of participating lender and the scheme is open until 31 December 2021, subject to review.
If the business is viable then it may be rescued either via a Company Voluntary Arrangement (CVA) or Administration. A CVA is a legally binding agreement between a company and its creditors, in which creditors are paid all or part of the debt over an agreed period of time. Subject to approval, a CVA will allow the company to continue trading, whilst making affordable payments. An insolvency practitioner is appointed to supervise the CVA, ensuring the company adheres to all of the terms of the agreement.
Administration is an option which can rescue a company but is more likely to save the core business and provide continuity to certain stakeholders. Again, an insolvency practitioner is appointed to manage the company’s affairs. The process can allow the company to continue trading (in administration), could result in a sale of the business and assets.
In many cases you will need to consider whether the company should be wound-up (formally closed). Voluntary liquidation is an insolvency process formally known as Creditors Voluntary Liquidation (CVL) and is appropriate where a business has no viable future and must cease trading. Once it is resolved that the company should enter CVL, a Liquidator will be appointed by the shareholders and creditors, and company assets will be sold in order to repay its liabilities.
Can Insolvency Practitioners at Keywood Group help?
Careful consideration must always be given to all options available. If your company cannot continue trading and has an unpaid Bounce Back Loan, then you should also think about how the funds were used. If you are worried about potential misuse of a Covid-support scheme then it is better to assess what has happened, and what the implications could be.
Keywood Group is a Licenced Insolvency Practice with offices in Birmingham and London. Our team has extensive experience in advising businesses and will always provide transparent advice on the implications of each option. Our Insolvency Practitioner is fully licenced and regulated by The Insolvency Practitioners Association.
If you want further information, please contact us for a no obligation chat.