All the important facts are right here
Many businesses that accessed funds would, in all probability, not have been able to reopen this year without the injection of funds that were made available relatively quickly compared to regular business borrowing.
While the bounce back loan scheme achieved its target of keeping thousands of small and medium sized companies in business in 2020, what circumstances do those same companies face in 2021?
Unless they successfully applied to have the initial repayments of the bounce back loan delayed for six months, the first payments are now coming due.
Not only for the original amount but also for any subsequent top-up amounts that were borrowed up to 25% of their turnover or a hard cap of £50,000.
The interest rate attached to a bounce back loan is set at a fixed 2.5% per annum over the six year repayment period which, while low, will be felt in the post pandemic cash flow. Undoubtedly, it will be a cause for concern for some business owners.
What is bounce back loan fraud?
Another issue that might be worrying some directors is being accused of wrongdoing or fraud.
There’s been a lot of stories about furlough fraud, but certainly less in volume about Bounce Back Loan fraud.
That’s not to say there hasn’t been any, but more that it’s a more complicated process and is likely to be heard of increasingly over the next few months.
The National Crime Agency has recently published details of an investigation into a £6 million bounce back loan scam leading to the arrest of 3 people working in financial services. It’s larger scale operations like these that are going to be of most interest in relation to fraud.
On a smaller scale, HMRC and Bank investigators will be looking to pursue bounce back loan borrowers where fraud is suspected.
In order to meet expected demand, applicants were allowed to self-declare their eligibility criteria on their applications. It is expected that a proportion of these applicants will have been fraudulently completed, and a first port of call for HMRC will be to look at the information entered in these applications.
As we’ve also previously written about – over £46 billion was lent under the scheme with best case default projections indicating that nearly £7 billion of this is expected to be written off – the cost of building six brand-new Wembley Stadiums!
The authorities will be looking to recoup as much as possible by targeting businesses which made false declarations or in the most extreme circumstances, directors who created bogus companies to submit loan applications through.
Bounce back loan investigations
The government have just announced that a new bill that will allow HMRC and The Insolvency Service to go after directors who dissolved their companies improperly leaving outstanding debts, including bounce back loans or tax.
The Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill will allow retrospective investigation and action to be taken against directors and can lead to disqualification and personal liability if they are found to have dissolved their company with outstanding debts.
This means that for the first time, authorities will have the power to investigate company dissolutions and strike offs retrospectively to make sure they were completed properly and punish directors of those that weren’t.
If you’re worried get some advice
Directors that had taken out finance under the bounce back loan scheme but been unable to make a trading profit from their business might be worried at this point.
For those considering closing their company through an orderly liquidation process (which would see creditors paid all or a proportion of their owed debts through asset sales) the threat of investigation might give them pause, especially if they thought it looked like they had obtained the loan and were closing the company months afterwards.
Chris Horner, Insolvency Director with BusinessRescueExpert, wants to reassure them that this isn’t the case at all.
He said: “While it’s true that The Insolvency Service and HMRC want insolvency practitioners to report all fraudulent Covid-19 applications in our director conduct reports – we do that as a matter of course anyway.
“They want to recoup as much bounce back loan borrowing as possible but their main focus is to get information that will help quicken disqualifications against rogue directors they’re already tracking, not only to punish them but to warn others against thinking they could get away with illegal borrowing in future.
“A small but important part of our job is to establish the liability of directors in insolvency cases. To see if there is any blame that can be attached to them through their actions and while illegal activity is an obvious red flag, the vast majority of directors have never done anything wrong and are worrying unnecessarily.
“What they have done is their level best to make their companies profitable and keep their employees’ jobs open during the most difficult trading period any of us has ever experienced.
“If they’ve been unable to do that then they’ve still acted properly and professionally by taking advice and looking to liquidate a business that cannot become viable again.
“Even other areas where a director might have found themselves in trouble previously such as wrongful trading have had the rules changed and been given more leeway and the legal benefit of the doubt.
“Any director that is worried, even a little, about the prospect of legal jeopardy if they have to close their business but have an outstanding bounce back loan hanging over them should get in touch with us – because 99 times out of a hundred, they’ll find there’s nothing for them to worry about.”
Small business owners might be the real unsung heroes of the economy in the last 12 months.
At the least, most have had to adapt to new circumstances and routines, additional stress, expense and hassle, just to keep staff in jobs and customers supplied. A large proportion have shut their workplaces and lost considerable amounts of income.
They might not expect medals for their diligence and duty but the last thing they deserve is a sense that they’re under suspicion or being accused of sharp practice.
We help businesses in trouble to turn themselves around and if they can’t, we help their owners and directors to bring things to an orderly conclusion and settle outstanding debts, including bounce back loans, with a minimum of fuss and stress.
If your business is in this position then contact us today.
We’ll arrange a free, formal consultation where we can explain your unique circumstances in more detail. Then we can work on an effective and efficient plan of action including steps you can take immediately.
The sooner you get in touch, the sooner things can change.