The government unveiled a series of steps aimed at keeping businesses afloat despite trade restrictions as the coronavirus outbreak continued to create unprecedented commercial disruption across the country.
One of these programs was the government-backed Bounce Back Loan, which allowed all eligible enterprises to borrow up to £50,000 without providing a personal guarantee. Bounce Back Loans become available in March 2020, with no repayments required for the first 12 months by the borrowing company.
However, like many businesses near the one-year anniversary of taking out their Bounce Back Loan, some are realizing that adding this additional expense is straining their cash flow. If you find yourself in this situation, you may be wondering where you stand and what your options are if you are unable to repay your Bounce Back Loan.
What are the terms of the Bounce Back Loan repayment?
Bounce Back Loans were previously available for a six-year term, with the first year being interest-free. Although the government covers the interest and any additional expenses for the first 12 months, there is a fixed rate of interest of 2.5 percent.
The repayment of a Bounce Back Loan is made in a series of equal monthly installments that are paid directly to the lender.
No one could have expected that lockdown measures would still be in place more than a year after these loans were first issued. As a result, many firms who took out a Bounce Back Loan with the expectation of repaying it when the time came have discovered that trade hasn’t recovered to pre-pandemic levels as soon as they had hoped. This has created significant difficulties in repaying the debt.
The government recognized the possible challenges that many firms would face, and as a result, at the Winter Economy Plan in September 2020, they unveiled the Pay As You Grow (PAYG) scheme.
What if I have to wait a while before I can start paying interest?
If you are wondering do you have to pay back the bounce back loan, be sure that you can extend the time by six months. This implies you’ll have 18 months to pay interest before you have to start paying it. However, interest begins to accrue after the 12th month, so you will wind up paying more in the end.
You can even extend your loan to ten years instead of the customary six. The government claims that this will cut monthly payments in half, yet you will wind up paying an additional 2.5 percent in interest.
What happens to the Bounce Back loan if the company goes bankrupt?
When a firm falls into liquidation, any personal guarantees you signed as a director to raise capital will usually become due. Following that, are entitled to the director’s loan account in debit, and you are personally liable for those sums.
A Bounce Back Loan is a debt that is not secured. Because there are no personal guarantees attached to the loan, it is classified as an unsecured debt if the company must liquidate. Unsecured debts are rarely paid in whole when a company goes bankrupt. In that instance, the lender will pursue the government for full repayment of the Bounce Back Loan, as it is backed by the government.
You will not be individually liable for the unsecured debt once the firm is liquidated. The firm retains complete responsibility for repaying the Bounce Back Loan, and no liability will be passed to you as a director or other shareholders if you have performed your duties as an entity of overdrawn directors’ loan accounts.
If you are wondering what happens if you can’t pay back your bounce back loan, you must be assured that there is no risk to your personal assets or credit.
During liquidation, a liquidator looks into your company’s financial history leading up to and during insolvency, and if they uncover proof that you utilized your Bounce Back Loan inappropriately, they may hold you personally accountable for the debt.
