Everything you need to know
Unfortunately not every business will be in a position to start making the repayments, even if they have taken advantage of the opportunity to delay repayments for six months.
Some businesses might even be on the verge of closing down but have a bounce back loan as part of their debts. What can they do?
In this article we’re going to look in a little more detail about the effects of liquidation (that’s closing down a company) with an outstanding bounce back loan.
One of the first important points to bear in mind is that the bounce back loan was an agreement between the lender and the company.
Unless you’re operating as a sole trader, this means that the onus on repayment remains with the business, not you, even if you are the only director or shareholder.
This means that if the company does close down or go into liquidation then the loan will be considered part of this process – and won’t be attached to you or your future personal finances.
Of course, this only applies if the BBL was used for its intended purpose of supporting the company in its day-to-day business activities. If it’s discovered that it was used to pay off personal debts or there’s any other evidence of malfeasance then it could become a personal liability and would have to be paid off from personal funds.
Bounce back loan default – what does this mean?
Defaulting on a bounce back loan or other credit agreement simply means not making a repayment when it’s due. There could be several reasons for this, some more serious than others, but ultimately they are all counted as a default.
Payment defaults are never good but some are worse than others. If you default on a mortgage payment or other loan secured against assets, then they could be placed in jeopardy.
The bounce back loan was security and personal guarantee free which means that lenders don’t have any physical security over it.
That doesn’t mean that they won’t take the matter seriously – they will. They will use their usual collection methods and systems including payment reminders and demands which will escalate (once temporary restrictions are lifted) into potential court action and the use of bailiffs if the debt isn’t eventually settled.
Realistically, if the company isn’t in a position to be able to make its first bounce back loan repayment then in all likelihood it’s probably insolvent.
The legal definition is that a company isn’t able to service its debt – of which the BBL is one. If you suspect this is the case or you’re close to it then you should take professional insolvency advice straight away.
It might be the case that the company can’t restructure or refinance its debts and has to go into liquidation – the official term for an insolvent closing down of the company.
If this happens then an insolvency practitioner will oversee the process from beginning to end so that the creditors are repaid through sale of the business’s assets.
In a liquidation, creditors are usually paid in order depending on what debts they hold against the company. Secured creditors, those that hold titles against business property and assets, are paid first as well as HMRC, with unsecured creditors being paid after.
A bounce back loan is classed as an unsecured debt so the lender would fall down the repayment order accordingly. But because the BBL is backed by the government, the lender would be able to reclaim payment in full from the Treasury, rather than from the sale of the liquidated business’s assets.
They would also be far less likely to lend to anybody in future that defaulted on a loan, even a government backed one.
If you don’t think you’ll be able to make your first bounce back loan repayment or will struggle with any other business debts then you should get in touch with us.
One of our experienced advisors will quickly bring themselves up to date with your situation and be able to offer clear and concise advice on what your options are – including whether liquidation or closing down would be feasible.