The headline figures that spell out exactly what is required from each party and by when? The clauses that can invalidate the whole deal if not adhered to or, cliche though it might be, the small print?
While they’re all significant - it’s the small print which often trips people up or suddenly makes them realise that a deal they signed is a lot worse or more expensive than what they initially thought they’d signed up for.
We came across a cautionary example recently concerning a company being denied access to its bounce back loan funds that it took out over a year previously.
The business took out a bounce back loan of £50,000 from their lender in May 2020.
Despite being relatively easy to access compared to regular business loans or other kinds of corporate finances, the bounce back loan was not without restrictions and eligibility criteria.
One of the main ones being that loans were linked to and limited by annual turnover.
Specifically businesses were entitled to a bounce back loan amount up to a maximum of 25% of their annual turnover provided this did not exceed £50,000.
So the company directors were surprised when they were contacted in June this year by the lender, 13 months after the loan was granted, to demand further evidence of their annual turnover.
They said that until they received proof they would not permit the company to access any of the remaining bounce back loan money still held in their account.
They also confirmed that if the directors were unwilling or unable to provide the requested information, or if their review of the evidence concluded that the business was ineligible for the loan then they may exercise their right to debit any remaining money from their account for the loan and commence recovery action for any outstanding sum.
In the event, the company was unable to prove that it had a sufficiently high turnover based on their trading figures at the time which were hampered and disrupted by the pandemic and their bank demanded repayment of the loan.
Unable to pay off this amount in full, the borrowing company decided to apply for a regular business loan to raise the necessary amount and then be able to pay it off over a longer period.
The bank not only rejected this application but also withdrew their banking facilities and served notice to close their account fully within 90 days.
This left the directors with no viable way forward and they reluctantly placed the business into a creditors voluntary liquidation.
We’ve previously written about how HMRC are keen to begin recouping outstanding debts including bounce back loan arrears and the forthcoming Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) bill making its way through the House of Lords will grant additional powers to the Insolvency Service to investigate the actions of directors of dissolved businesses within the previous two or more years.
However, the turnover requirement was always one of the more problematic elements of the bounce back loan especially regarding accessing the top up facility if it was needed.
When top ups were first announced in November 2020, they were welcomed as a sensible additional option for companies that had taken some borrowing but not the maximum amount.
They could then use this flexibility if they required it and with further lockdowns being implemented, many did.
What happened was that many businesses were initially turned down for a top up despite meeting the other criteria because of the turnover rule.
Because companies had to rely on the figure they supplied with the initial application, they were not able to reflect the current circumstances facing their business when they applied.
In the initial application rules several banks stipulated that an estimate for the 2019 turnover figure could be used if they didn’t have the exact and verifiable amount available when applying.
And in the top up application conditions it specifically states - the top-ups are only available from a borrower’s existing BBLS lender. A borrower can apply for a top-up that is for the lesser of £50k or 25% of the annual turnover the borrower certified in their original successful BBLS application form minus the value of their original loan.
This obliged the borrower to rely on the original turnover figure quoted when applying for the initial bounce back loan but with no consideration given to any changes in circumstance.
The British Business Bank, which administered the scheme on behalf of the government, inadvertently encouraged businesses to use potentially inaccurate information on their application with the obvious potential for negative consequences further down the line for borrowers as we saw in the earlier example.
Bounce back loan fraud was a real issue that had to be treated seriously but loopholes like relying on an estimated turnover means that many borrowers could find themselves under suspicion through no fault of their own - for not making accurate enough predictions!
Business owners and directors are already facing an uncertain few weeks before Christmas and the New Year without worrying about being asked questions about their bounce back loan.
Especially if it’s already been used for the purposes it was created for - supporting a company and it’s staff under the most trying trading circumstances for decades.
Fortunately we can help alleviate any worries about outstanding bounce back loans, VAT arrears or any other debts they might be concerned about with a simple conversation.
We offer a free initial consultation to discuss their situation and any imminent problems they’re having regarding problem debt or any financial issues affecting their business.
Once we get a fuller picture we can let them know what options they have in the near and longer term and what they can do right now to improve their prospects.