The bounce back loan scheme was integral to the Government’s covid-19 financial support package. Eligible businesses could borrow up to £50,000 at a low-interest rate to help them navigate the unprecedented challenges presented by ongoing national lockdowns and local restrictions.
Unfortunately, the catastrophic economic effects of the pandemic were far-reaching, and many business owners have since struggled to rebuild their livelihoods, notwithstanding the Government’s support. Now, confronted with rising bills and a cost-of-living crisis, those business owners face the prospect of meeting their bounce back loan repayments. As a result, we are often approached by businesspeople asking for advice on how to write off their bounce back loan.
If you would like to have a free confidential discussion with a member of our team, please either make a Free Request For Call Back or call us directly on 01908 414990 and we will be pleased to help you
The Bounce Back Loan Scheme
Bounce back loans were part of a package of financial support implemented by the UK Government in the face of the covid-19 crisis. The scheme was rolled out at unparalleled speed, in a bid to provide critical funds to businesses forced to close or significantly scale back their commercial operations due to the pandemic. Applying for assistance under the scheme was deliberately straightforward to expedite the process, with applicants self-certifying their eligibility and need. Whilst the Government accepted that the simplistic nature of the application process left it open to fraud, most businesses who used the scheme did so in good faith. Bounce back loans provided a lifeline for many, and it is estimated that half a million more businesses would have failed without the support.
Bounce back Loan repayments
Businesses using the bounce back loan scheme were granted a grace period of 12 months before their repayment obligations kicked in and interest began to accrue. Upon the expiry of that grace period, the loan had to be repaid by way of monthly instalments. Whilst the interest rate was low at 2.5%, the repayments on a bounce back loan of £50,000 over a 6-year period still amount to nearly £1,000 a month.
Help with repaying your Bounce Back Loan
The Government recognises the considerable strain placed on UK businesses by the pandemic and ongoing economic downturn. In response, it has introduced a series of measures to alleviate the impact of bounce back loan repayments, known as the ‘Pay As You Grow’ scheme. The measures include:
- Paying interest only for a 6-month period.
- Taking a payment holiday for 6 months.
- Extending the term of your loan from 6 years to 10, thereby reducing your monthly repayments.
Your lender will discuss these options in more detail with you and advise on your eligibility.
If you would like to have a free confidential discussion with a member of our team, please either make a Free Request For Call Back or call us directly on 01908 414990 and we will be pleased to help you
Can you write off a Bounce Back Loan?
For some, the measures implemented under the Pay as You Grow scheme provide welcome respite whilst they rebuild their profitability to pre-pandemic levels. However, for many, the scheme simply does not go far enough. Reduced income, coupled with rising bills, leaves them facing an uncertain future and potential insolvency. In these cases, the question often arises as to what will happen to their bounce back loan if the business fails; can it be written off or will the business owner be personally liable to repay it? The answer depends on whether you operate your business as a company or sole trader.
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How to write off your Bounce Back Loan if you are a company
A unique feature of bounce back loans was that they were guaranteed by the Government. As a result, lenders did not seek the personal guarantees from directors they would usually require when providing funds to a company. As a result, directors are not personally on the hook if their company becomes insolvent and cannot repay the loan. Their assets, such as their home or vehicle, are not at risk and instead, the loan becomes an unsecured debt.
However, in light of the high fraud risk that accompanied bounce back loans, HMRC is taking action against any company director believed to have misused the scheme. If HMRC’s investigations show that the loan was obtained improperly or the funds were used for non-business purposes, the director faces disqualification, financial penalties and imprisonment.
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How to write off your Bounce Back Loan if you are a Sole Trader
Unfortunately, the position in the case of sole traders is somewhat different. Companies are separate legal entities to their owners and directors, whereas sole traders are one and the same. As a result, they are personally liable to repay the bounce back loan, although their home and personal vehicle cannot be the subject of any enforcement action instigated by the lender. Sole traders struggling to meet their financial obligations may be able to enter into an insolvency arrangement such as an Individual Voluntarily Arrangement (IVA), under which they repay their debts through an affordable, monthly sum. Interest and charges on the debts are frozen, and the creditors cannot pursue the individual for the outstanding debt whilst the IVA is in force.
How we can help if you are struggling to repay your Bounce Back Loan
If you are concerned about repaying your bounce back loan, speak to us. Our advice is concise, straightforward and commercially focused, and we will work with you to devise a strategy to achieve your personal and business goals.
If you are unsure whether you were eligible to use the bounce back loan scheme, our specialist HMRC team are ideally placed to assist. We will review your situation at the time of your application and, if it transpires that you were not entitled to borrow the funds, advise on the best course of action. We have extensive experience in HMRC related matters and liaising with HMRC on behalf of clients. If HMRC have not yet contacted you regarding your bounce back loan eligibility, but you are concerned that they may have reason to, it is better to face the issue head on, since proactive action can often result in a reduced penalty.
If you would like to have a free confidential discussion with a member of our team, please either make a Free Request For Call Back or call us directly on 01908 414990 and we will be pleased to help you