How your business can bounce back if you’re running out of options
The BBL was designed to have simpler qualifying criteria and to provide both a swift decision and if affirmative, equally quick remittance. However, there are still a number of small businesses that will have their bounce back loan application rejected.
The only official criteria for rejection of the application is if the business was already experiencing financial difficulties as at 31 December 2019. This can include county court judgements against the business, arrears with HMRC, or in some cases may be as simple as consistent trading losses and a big deficit on your balance sheet.
Unfortunately, based on the availability of these loans, for those whose applications are rejected, it may be time to consider formal insolvency options, if this is pointing to a pre-existing issue with the business prior to the emergence of the virus.
Here’s a quick guide to what your business can do if you’re turned down for a BBL or any other kind of assistance or credit line:
A lot of business owners and directors get very nervous when they hear the word “administration” – especially when it’s associated with their own company.
They shouldn’t. It’s a useful tool to help buy time for any business that needs some breathing space to get its ducks in a row and restructure itself to be more resilient and robust when it reemerges.
A company going into administration will automatically be protected from creditors and their demands by way of a moratorium.
It’s still a formal insolvency process and shouldn’t be entered into lightly, as the business will still come under the control of a qualified external administrator but their job is to ensure the best return for creditors.
This may be done through a pre-pack administration, where a buyer is found for the business prior to entering administration, whether this is a third party or a management buyout.
An administrator won’t keep a failing business going out of duty or goodwill. If there’s no viable way for the business to survive then they would look to close it and obtain the best value for any creditors through the sale of assets.
If a business is a solid proposition however, and just needs a temporary respite to refuel and re-energise then administration could be the best option.
A business that enters a Company Voluntary Arrangement (CVA) accepts that the way ahead is blocked but there might be a longer route it can take to get back to profitability – but it needs its creditors to agree to the detour.
Creditors may agree to write off a proportion of debt and accept lower regular payments on the remaining debt for the length of the CVA.
The company will get the same protection against creditors actions as any business entering administration including winding-up petitions; they can still look to restructure but they’ve committed to making these regular payments as a concrete gesture of goodwill towards creditors that have given them a break when they need it most.
Just as it’s important to encourage hope when there is a chance of turning around a business, it’s necessary to recognise the end of the road when you see it and apply the brakes.
If there’s too much debt to overcome and it’s impossible by all regular measures that a company could trade its way back to profitability in any circumstances, let alone an economically devastating global pandemic, then liquidation is the only logical response.
A CVL is when the directors or shareholders of a business recognise the unavoidable truth and appoint a liquidator to close the company and raise whatever funds they’re able to to pay creditors.
This is a one-way ticket for any company and while it’s never entered into lightly, it can be the best way forward for everybody associated with a terminally insolvent company.
One thing that more than a few directors overlook while trying to run their business or keep it afloat in unprecedented conditions is their status.
We don’t mean personalised parking places or expensive seats, but that as well as being directors the majority are also employees.
If you take a portion of your salary through PAYE rather than exclusively through dividends or other remuneration arrangements then you’ll automatically be eligible for director’s redundancy pay and other entitlements where due – unpaid wages, outstanding holiday pay, notice pay and any unpaid pension contributions. If the company is unable to pay, this is covered by the Redundancy Payments Service.
It’s all our friends at Redundancy Assist do so you might want to get in touch with them too if any of this applies to you. They will be happy to provide you with an assessment.
When the unexpected happens people react in one of three ways.
They can make a snap decision based on their emotions at the time; they analyse and consider their situation, look at evidence and advice before deciding what to do or they freeze and consciously not make a decision, allowing events to play out as they will.
Only one of these has a far higher chance of success than the others and if you’ve read this far it’s because you’re analysing and considering your decision.
Spoiler – that’s generally the right call.
We can’t guarantee that we can magically save a failing business or that your creditors will waive their claims and send you on your way with a cheery wave but we will do everything we can to make sure that you’ll have the best chance of rescuing your business.