# Bounce Back Loans: what to do if you can’t repay?
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2021-06-30
Category: BUSINESS
Category URL: https://financedigest.com/category/business
Meta Title: Struggling to Repay Bounce Back Loan? Expert Advice from
Meta Description: Find out what to do if you can't repay your Bounce Back Loan with insights from licensed Insolvency Practitioner, John Bell, Director of Clarke Bell.
URL: https://financedigest.com/bounce-back-loans-what-to-do-if-you-cant-repay-2html

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_**John Bell** is Director of licensed Insolvency Practitioners **[Clarke Bell](https://www.clarkebell.com/)**_

It has been a turbulent and challenging time for thousands of businesses across the UK with many experiencing the knock-on effects of the COVID-19 pandemic and subsequent lockdowns and restrictions.

Many businesses have experienced a loss of income, have had to close altogether or drastically change the way they operate amidst a tough financial climate.

But, keen to buoy up business, the Chancellor handed out a lifeline in the form of the Bounce Back Loan Scheme. This allowed businesses to borrow between £2,000 and up to 25% of their turnover, limited to a maximum of £50,000.

Applications for the scheme closed in March 2021, and [thousands of businesses took advantage of the government](https://www.financedigest.com/southwest-cancels-thousands-more-flights-u-s-government-vows-scrutiny.html "Southwest cancels thousands more flights; U.S. government vows scrutiny") backed scheme to allow them to stay afloat.

However, with repayments kicking in since May 2021, many [business owners are struggling](https://www.financedigest.com/pakistan-floods-add-to-pain-for-struggling-small-businesses.html "Pakistan floods add to pain for struggling small businesses") to pay back what they owe.

John Bell is director and founder of licensed insolvency practitioners [Clarke Bell](https://www.clarkebell.com/) and here he explains the purpose of the Bounce Back Loan Scheme and what business owners can do if they cannot repay the loan.

**What is the [Bounce Back](https://www.financedigest.com/biotech-stocks-pin-bounce-back-hopes-on-ma-boost.html "Biotech stocks pin bounce back hopes on M&A boost") Loan Scheme?**

The Bounce Back Loan Scheme was initiated by the government to help small to medium businesses that were originally excluded from the [Coronavirus Business Interruption Scheme.](https://www.gov.uk/guidance/apply-for-the-coronavirus-business-interruption-loan-scheme) It was designed to offer a quick cash injection to struggling businesses to sustain them during the  pandemic.

The loans are interest free for the initial 12 months and then have a 100% government-backed guarantee for lenders. Once the first 18 months are up, there is an [interest rate](https://www.financedigest.com/interest-rate-and-recession-fears-knock-stocks-and-oil.html "Interest rate and recession fears knock stocks and oil") of 2.5% per year and repayments can be stretched for up to 10 years.

The loans can be used for a range of purposes, from [paying staff](https://www.financedigest.com/unicredit-to-pay-bonus-replace-850-older-branch-staff-in-italy.html "UniCredit to pay bonus, replace 850 older branch staff in Italy") wages, covering business rates to covering monthly business costs or overheads. However, they [must be used for business](https://www.financedigest.com/private-equity-firms-hungry-for-investment-opportunities-but-business-owners-must-be-cautious-2.html "Private equity firms hungry for investment opportunities, but business owners must be cautious") purposes and cannot be used to pay dividends or to pay for personal items, such as a mortgage or household purchases.

Earlier this year, the government rolled out the Pay as You Grow Scheme which was designed to allow for more flexible repayment on [Bounce Back Loans](https://www.clarkebell.com/blog/pay-as-you-grow-bounce-back-loans/) over fears that businesses would struggle to repay the money owed with the first repayments being due from May 2021.

This allowed companies to be able to delay repayments by a further 6 months, extend the length of the loan from 6 years to 10 years at the same [interest rates](https://www.financedigest.com/interest-rate-hold-signals-confidence-in-uk-economy.html "Interest rate hold signals confidence in UK economy ") and make interest-only payment for 6 months. However, many will still struggle to pay the loans [back due to the severity of their financial difficulties caused by Covid](https://www.financedigest.com/fda-advisers-back-the-same-covid-vaccine-for-initial-shots-boosters.html "FDA advisers back the same COVID vaccine for initial shots, boosters") and the lockdowns.

**What happens if I can’t repay the Loan?**

If a company [can’t afford](https://www.financedigest.com/still-living-at-home-a-third-of-the-nation-cant-afford-to-rent.html "Still living at home? A third of the nation can’t afford to rent") to repay the Bounce Back Loans and they are discussing their situation with an Insolvency Practitioner, the declarations made by the director(s) at application stage will be reviewed by the Insolvency Practitioner and the company’s actions looked at closely.

This is because when [applying for the Bounce Back Loan](https://www.financedigest.com/home-equity-made-simple-things-to-know-before-applying-for-loans.html "Home Equity Made Simple – Things to Know Before Applying for Loans") Scheme, business owners were asked to formally declare that the pandemic was the reason that their business was facing difficulties and that before the pandemic the business was ‘financially sound.’

So, if a company can’t pay back the Bounce Back Loans and the directors are found to have provided false information in this declaration, the directors might be made personally liable for the loan once the company has been liquidated.

**What to do when your company can’t pay back the Bounce Back Loan?**

Earlier this year, the Chancellor extended the flexibility of the loan, meaning [businesses are not obligated to make repayments on their loans](https://www.financedigest.com/types-of-business-loans.html "Types of business loans") until 18 months after they originally took them out.

[Businesses first began to receive loan](https://www.financedigest.com/the-definitive-guide-on-how-to-get-a-bad-credit-business-loan.html "The Definitive Guide on How to Get a Bad Credit Business Loan") payments in May 2020, meaning the first repayments would be due in May 2021. So, if you are continuing to struggle, you can take advantage of delaying the loan repayments for a further 6 months.

However, if you can’t repay Bounce [Back Loans due to a deeper cashflow problem within your business](https://www.financedigest.com/improve-your-business-while-saving-the-planet-and-your-back-with-easycat.html "Improve your business while saving the planet and your back with EasyCat"), it might be time to look at other options. These can include [HMRC time to pay arrangements,](https://www.gov.uk/difficulties-paying-hmrc) options for business rescue including Company Voluntary Arrangement, or in the case that your business is not viable, liquidation via a Creditors’ Voluntary Liquidation.

**Can Bounce Back Loans be written off?**

As Bounce Back Loans are loans to the company, and not the individual such as the director, if the company goes into liquidation, the loan will be written off.

However, if some of the Bounce Back Loan has been used to pay for non-company items – such as [paying the director’s home mortgage](https://www.financedigest.com/7-questions-to-ask-before-paying-off-your-mortgage-early.html "7 Questions to Ask Before Paying Off Your Mortgage Early") or other household bills – that amount will need to be repaid.

So, if you can’t pay back the Bounce Back Loan and your company is no longer sustainable, you might consider liquidating through a [Creditors’ Voluntary Liquidation (CVL)](https://www.clarkebell.com/blog/what-is-the-difference-between-a-cvl-and-a-cva/).

This is a voluntary form of liquidation that allows the company to close whilst settling [debts they owe to creditors](https://www.financedigest.com/sovereign-debtors-creditors-agree-on-steps-to-jumpstart-debt-restructurings.html "Sovereign debtors, creditors agree on steps to jumpstart debt restructurings").

A CVL is a formal insolvency process carried out by a licensed Insolvency Practitioner who liquidates the company, stopping it from trading and operating.

(This is opposed to Compulsory Liquidation, where a company is forced to stop trading by creditors who issue a winding-up petition to the court if a company owes them £750 or more and their payment demands have gone unfulfilled.)

Businesses struggling to pay back the Bounce Back Loans may also consider a [Company Voluntary Arrangement (CVA)](https://www.clarkebell.com/blog/cva-advantages/). However, this will only be available to companies that have real chances of [business rescue](https://www.financedigest.com/smishing-is-a-new-virus-plaguing-big-business-conversational-commerce-to-the-rescue.html "‘Smishing’ is a new ‘virus’ plaguing big business – Conversational Commerce to the rescue!").

A CVA is also an option open to insolvent businesses, however, unlike liquidation, a CVA aims to [turn the business](https://www.financedigest.com/6-expert-tips-to-turn-your-photography-passion-into-a-business-2.html "6 Expert Tips to Turn Your Photography Passion into a Business") around and restore it to profitability.

A CVA allows an insolvent [company to come to an agreement with creditors to repay its debts over a fixed period of time](https://www.financedigest.com/oxford-bus-company-outsources-for-the-first-time.html "Oxford Bus Company Outsources for the First Time"). Whilst a company is under a CVA, the [director remains in control and it can continue](https://www.financedigest.com/multilocal-hires-new-directors-as-steep-growth-trajectory-continues.html "Multilocal hires new directors as steep growth trajectory continues") to trade.

This is a process that is also carried out by an Insolvency Practitioner who will [work with the company](https://www.financedigest.com/alone-together-how-to-maintain-a-positive-company-culture-while-working-remotely.html "Alone together: How to maintain a positive company culture while working remotely") directors and their accountant. An Insolvency Practitioner is also appointed to carry out the CVA and is the ‘Supervisor’ during the length of the CVA – which is typically three to five years.

**Can’t repay Bounce Back Loans?**

If your company is struggling financially and you can’t repay your Bounce Back Loans – or any other company debts – you should immediately seek professional advice. Get the situation sorted out as [soon as possible to get rid of the problem and the stresses](https://www.financedigest.com/planning-to-move-to-the-low-carbon-economy-how-banks-can-plan-today-for-new-stress-tests-arriving-soon-2.html "Planning to move to the low carbon economy: How Banks can plan today for new stress tests arriving soon") associated with it.

If part of your Bounce Back Loan has been spent on non-business items (e.g. your mortgage), this will need to be repaid – and your accountant and Insolvency Practitioner can help you with that.

The best option might be to put your company into a CVL and you make a redundancy [claim to help pay](https://www.financedigest.com/cvs-walmart-walgreens-agree-to-pay-13-8-billion-to-settle-u-s-opioid-claims-sources.html "CVS, Walmart, Walgreens agree to pay .8 billion to settle U.S. opioid claims – sources") the loan with monthly repayments. Your Insolvency Practitioner will help you with your redundancy claims – many do not charge an additional fee for this, which means there is more money available for your repayments.

Most insolvency practitioners will offer you a free, no obligation initial consultation to discuss your situation and agree a plan to help you navigate the next steps for you and your company.

Having a business with [debts it can’t pay back](https://www.financedigest.com/european-junk-debt-sales-spring-back-to-life-as-sentiment-improves.html "European junk debt sales spring back to life as sentiment improves") is difficult and stressful for a company director, but there are experts who are experienced in this area and ready to help you get through this phase of your life.


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