Payback for bounce-back loans approaches: Deadlines, handling debts and disputes
20th July 2021
The Government’s bounce back loan offered to businesses during the coronavirus pandemic, gave emergency finance to struggling organisations of between £2,000 and £50,000. The loans were interest-free for the first twelve months, with the first loans delivered in May 2020. This means that for some, the time to start repaying is here.
For those not repaying the full amount straight away, interest will be payable on the outstanding amount at a rate of 2.5 per cent per annum from the end of the first year of the loan.
Pay As You Grow
For businesses unable to start repaying their bounce-back loan straight away, the government announced a Pay As You Grow (PAYG) scheme in September 2020.
Under PAYG, repayments can be delayed for a further six months after the end of the first year, although interest will be charged during this time.
Borrowers have the option to pay interest only on the loan for six months three times during the term of the loan.
It is also possible to extend the loan period from the initial six years offered on all loans to ten years, meaning smaller monthly payments. The interest rate of 2.5 per cent will continue to apply throughout this time so that the sum repaid will be higher overall.
PAYG will be offered and administered by the lenders responsible for the initial loan.
Difficulty in paying back bounce back loans
If you believe that you may be unable to repay the bounce back loan, you need to be particularly careful what you use the loan money for. In particular, you should not pay out dividends or drawings if your business cannot pay its suppliers or creditors. You should also be cautious about using the loan to repay loans where you have given a personal guarantee, as this may be seen as a ‘preference’ payment in breach of your duties as a director.
As a company director, you need to be able to show that you have acted reasonably and responsibly.
The Insolvency Service will have powers to investigate the directors of companies that have been dissolved with bounce back loans outstanding, and action is likely to be taken where it is found that a company has been inappropriately wound-up after receiving a bounce back loan.
If there are difficulties in respect of other liabilities, then you should consider all other options that could help with cash flow. This could include restructuring and taking advantage of schemes such as HM Revenue & Customs’ time-to-pay arrangements.
The bank behind your bounce-back loan will not be able to take a personal guarantee from you or seize personal assets or take a charge over your home. Defaulting should not affect your credit score either, as credit checks were not mandatory on application.
However, you will be pursued by the bank for outstanding money in the same way that they would for any other unsecured loan, with correspondence and potential court action and the use of a debt collection agency. Banks are likely to use debt collection agencies to try and recoup the loan, as they cannot claim on the Government’s 100 per cent guarantee until a debt collection agency has exhausted all methods of obtaining payment.
Disputes and difficulties
When the bounce back loans were made, banks were not able to use their normal credit checks, with loans being rushed out within 48 hours of an application being made, without scrutiny and without the usual safeguards in place in respect of the lending. Applicants were able to self-certify in a short online form, with a risk of misleading or inaccurate information being provided.
The likelihood of fraud has subsequently been assessed as very high, with banks now scrambling to identify issues.
Once a bounce-back loan has been assessed and flagged as fraudulent, fraud markers are likely to be put against the director involved.
Although there could be an innocent explanation, such as a business erroneously making more than one application, directors could find themselves with fraud markers against their name. It is unlikely that they will be aware of this until they or their business applies for finance at some point in the future.
There is also a risk that banks will review loans that have been made and pursue companies and directors where the loans have not been used for the purpose intended when the application was made or where an application is deemed fraudulent.
If you are experiencing difficulties following the issue of a bounce-back loan, we can advise you of the best course of action. Our solicitors have excellent commercial understanding and can talk you through your options, answering your questions and setting out a roadmap for your business to regain a solid financial footing.
We can also suggest other options for your business such as restructuring to help you through the current situation.
If you believe that you are being investigated because of your bounce-back loan application, we can represent you in putting together evidence of your legitimate position, showing your entitlement to bounce-back funds. It is likely that scrutiny of loans will be high in the coming months, meaning that many businesses will need to be able to show good intentions and honest actions.
Get in touch with us
At Lincoln & Rowe we understand the importance of helping our clients keep their businesses running smoothly. If you are dealing with issues relating to a bounce-back loan, we can advise you on the best course of action.
Our advice is commercially focused and we will take the time to understand your business so that we can tailor our recommendations to suit your needs exactly.
We were named as the ‘Commercial Disputes Specialists of the Year’ in the Corporate Livewire Innovation & Excellent Awards 2020 as well as ‘Boutique Litigation Law Firm of the Year’ in both the 2019 and 2020 Global Awards by ACQ5. Partner, Dipesh Dosani, was named Commercial Litigation Lawyer of the Year in 2019 and 2020 in the ACQ5 Law Awards.
If you would like to talk to one of our expert legal team about a contract dispute, call us on 020 3968 6030, email us at firstname.lastname@example.org or fill in our contact form and we’ll be happy to help.
The above information is for general guidance on your rights and responsibilities and is not legal advice. If you need more details on your rights or legal advice about what action to take, please contact a legal advisor.