BOUNCE BACK LOANS
Worried about a Bounce Back Loan the company cannot repay?
A Bounce Back Loan was borrowing by the business. For a limited company, being unable to repay it does not automatically make the director personally liable.
But if the company is now struggling, there may be other questions that matter — including whether the company was entitled to the loan, what information was given when it applied and how the money was ultimately used. Company Debtline provides free, confidential guidance to help you understand the company's liability, your own position and the issues that may need closer attention before deciding what to do next.
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Bounce Back Loans — what directors should understand.
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Prefer to choose a time? Book a call.The company being unable to repay the loan is not the same as the loan having been misused.
Thousands of businesses took Bounce Back Loans during the pandemic to deal with extraordinary disruption.
Some recovered. Others continued trading but never returned to their previous financial position. For some companies, the Bounce Back Loan is now simply one of several liabilities that the business is struggling to service.
That does not, by itself, mean that the director has done something wrong.
The position becomes more important where there are questions about how the loan was obtained, the information provided in the application or what happened to the money afterwards.
There is an important difference between a company that genuinely borrowed and used a Bounce Back Loan for its business but can no longer afford the repayments, and a case where the application or use of the money may itself be questioned.
WHEN THE BOUNCE BACK LOAN NEEDS CLOSER ATTENTION
The warning signs directors should not ignore.
The outstanding balance is only part of the picture. If the company is experiencing wider financial difficulty, it is worth understanding the history of the loan as well as its current repayment position.
- Bounce Back Loan repayments are now in arrears or becoming difficult to maintain.
- The company is paying the loan by delaying HMRC, suppliers or other creditors.
- The business is considering liquidation or has stopped trading.
- You are unsure what turnover figure was used in the original application.
- You are uncertain whether the company met the scheme eligibility requirements when it applied.
- Significant amounts of the loan were transferred to directors, shareholders or connected parties.
- Some of the money was used for expenditure that may have been personal rather than business-related.
- The company's records no longer clearly show where the Bounce Back Loan money went.
- Withdrawals from the company have subsequently appeared within a Director's Loan Account.
- You are considering dissolving the company while a Bounce Back Loan remains outstanding.
None of these points automatically establishes wrongdoing. They do mean that the application, use of funds and accounting records may need to be understood properly.
Start by answering six separate questions.
The Bounce Back Loan should be looked at in context. These questions help distinguish an ordinary company repayment problem from an issue that could require closer examination of the director's own position.
- THE OUTSTANDING BALANCE — How much remains due, are repayments up to date and what has the lender said about the account?
- THE ORIGINAL APPLICATION — What turnover was declared, when did the company apply and what information was used to support the application?
- THE COMPANY'S ELIGIBILITY — Was the company trading and otherwise eligible for the amount that it received under the scheme rules?
- HOW THE MONEY WAS USED — Can the company show how the loan provided an economic benefit to the business and where the money ultimately went?
- DIRECTOR WITHDRAWALS — Did any of the money pass to a director personally, and if so, how was that transaction accounted for?
- THE COMPANY'S POSITION NOW — Is the Bounce Back Loan the principal problem, or is it one part of a wider position involving HMRC, suppliers, finance and other debts?
These questions help separate an ordinary company repayment problem from an issue that could require closer examination of the director's own position.
What can you do if the company is struggling with its Bounce Back Loan?
A Bounce Back Loan should not be looked at in isolation.
The appropriate next step depends on the company's wider financial position and whether there are any concerns about the original loan.
SPEAK TO THE LENDER
If the underlying business remains viable but repayments are creating pressure, speak to the lender about the account and any repayment options that remain available.
REVIEW THE ORIGINAL APPLICATION
If you are unsure what turnover was declared or why a particular amount was borrowed, establish what was submitted rather than relying on memory.
TRACE HOW THE MONEY WAS USED
Bank statements, ledgers and accounting records can help establish where the money went and distinguish ordinary business expenditure from payments that may require further explanation.
UNDERSTAND ANY DIRECTOR'S LOAN POSITION
Money moving from the company to a director can create a separate accounting issue. If withdrawals contributed to an overdrawn Director's Loan Account, that needs to be understood independently from the Bounce Back Loan itself.
LOOK AT THE WIDER SOLVENCY POSITION
If the company cannot meet the Bounce Back Loan alongside HMRC, suppliers and its other liabilities, the issue may no longer be the loan alone. The company's overall financial position may need to be considered.
The questions directors usually want answered first.
When a company cannot repay its Bounce Back Loan, directors usually want to know whether the debt becomes personal and whether anything about the original application or use of the money creates a separate issue.
Am I personally liable for my company's Bounce Back Loan?
For a limited company, not simply because you are the director. Personal guarantees were prohibited under the Bounce Back Loan Scheme. The company remains the borrower. However, separate personal consequences can arise where there has been misconduct, an improper application or misuse of company funds.
The loan was government guaranteed. Doesn't that mean the government pays it?
The guarantee was provided to the lender. It did not remove the borrower's obligation to repay the loan.
What happens to the Bounce Back Loan if the company goes into liquidation?
The outstanding loan remains a liability of the company and is dealt with through the insolvency process. The existence of an unpaid Bounce Back Loan does not automatically make a director personally responsible for it. However, the circumstances surrounding the application and use of the loan may be examined where there are concerns about eligibility, personal use or other misconduct.
What if I used some of the money personally?
That needs to be looked at carefully rather than assumed to have one particular outcome. The scheme required the loan to be used for the economic benefit of the business and not for personal purposes. The accounting treatment of any money withdrawn by a director also matters.
What if the turnover on the application was wrong?
That can be important. The permitted loan was generally based on up to 25% of turnover, subject to the scheme maximum. If the turnover figure was materially wrong, the circumstances and how the figure was arrived at may need closer examination.
What if the loan was used properly but the business simply failed?
A business subsequently becoming unable to repay its Bounce Back Loan does not by itself establish misconduct. The important distinction is between ordinary commercial failure and concerns about how the loan was obtained or used.
What happens when you speak to Company Debtline?
- 01
TALK
Tell us what is happening
Explain how much remains outstanding, whether repayments are up to date and what is happening with the company generally.
- 02
REVIEW
Understand the history of the loan
We help you identify the important questions around the application, eligibility, use of the funds and the records available.
- 03
SEPARATE
Distinguish company liability from your personal position
We help separate what the company owes from any issues that could potentially affect you personally as a director.
- 04
NEXT STEPS
Understand what needs attention
Depending on the circumstances, the next step may involve the lender, the company's accountant, professional insolvency advice or separate advice about a director-related issue.
Free and confidential guidance for directors of UK limited companies.
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Frequently asked questions
Is an unpaid Bounce Back Loan automatically my personal debt?
No. For a limited company, the Bounce Back Loan Scheme did not permit the lender to take a personal guarantee from the director. Separate personal exposure can arise from other issues, but the fact that the company cannot repay the loan does not by itself transfer the debt to the director.
Will a liquidator look at the Bounce Back Loan?
The company's financial affairs, records and director conduct form part of the insolvency process. Where there are questions about the Bounce Back Loan application or the use of the funds, those matters can therefore become relevant.
What records should I keep?
Keep the original loan documentation where available, bank statements showing receipt and use of the money, accounting ledgers, invoices and other records that help explain how the funds were used.
Can a Bounce Back Loan create a Director's Loan Account?
Potentially, depending on what happened to the money and how transactions were recorded. If company funds were withdrawn by a director and were not salary, dividend, reimbursement or another properly accounted transaction, the accounting position needs to be checked.
Can I dissolve the company with a Bounce Back Loan outstanding?
Do not assume that dissolution makes the liability disappear. A lender can object to dissolution where a Bounce Back Loan remains outstanding, and attempting to dissolve a company simply to avoid repayment can create separate concerns.
Could I be disqualified because of a Bounce Back Loan?
Potentially, where misconduct is established. That is very different from a company simply being unable to repay a properly obtained and properly used loan.
Understand the Bounce Back Loan before assuming it becomes your personal problem.
The company's debt, the history of the loan and your own position as a director are three different questions.
If your company is struggling to repay a Bounce Back Loan, Company Debtline can help you understand the outstanding liability, whether anything about the application or use of the money needs closer attention and what the position could mean for you personally.
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