Bounce Back Loan Scheme

Back in the depths of the pandemic the government hastily introduced the Bounce Back Loan Scheme (BBLS), which was designed to enable businesses to access finance more quickly during the coronavirus outbreak.

BBLS was available through a range of accredited lenders and partners and provided financial support to businesses across the UK that:

• were losing revenue, and seeing their cashflow disrupted, as a result of the Covid-19 outbreak
• could benefit from £50,000 or less in finance.

A lender could provide a six-year term loan from £2,000 up to 25% of a business' turnover. The maximum loan amount was £50,000. The scheme gave the lender a full (100%) government-backed guarantee against the outstanding balance of the facility (both capital and interest).

Businesses have various repayment options which include requesting an extension of the term, reducing monthly repayments for six months by paying interest only and taking a repayment holiday for up to six months.

It is fair to say that there has been some confusion since the scheme closed and some business owners may have seen the BBLS as 'free money'. This is because the lenders were instructed to make the loans available to businesses quickly which led to minimal checks being carried out by the lenders and significant reliance on information provided by the borrower at the time of application. This is particularly in relation to eligibility for the loan.

However, of course, the loans have never been 'free money' and the borrower always remains fully liable for the debt. In addition, the government is now clamping down on fraudulent applications for the loan.

The Insolvency Service has recently announced that it has successfully secured restrictions against a gym operator and roofer after they falsely applied for Bounce Back Loans. The affairs of companies in liquidation and individuals who are going bankrupt are being looked at closely. In one case, it was found that a business owner legitimately applied for one BBLS but this was followed by applications for two additional loans made by applying to two separate financial institutions. This was not permitted and the company director is now banned from running companies for 11 years.

In another case of individual insolvency, the Official Receiver discovered that the business owner had provided incorrect information to obtain a loan for a sum far greater than he was entitled to by using inflated turnover figures. The purpose of the loans was to support businesses during the pandemic. The Official Receiver discovered that a business owner had spent a £13,000 Bounce Back Loan on gambling in just three weeks. As a result of this, the bankruptcy restrictions have been extended to seven years and the bankrupt is limited as to what credit he can access and he cannot act as a company director without permission of the court.  The liquidator and trustee in bankruptcy will pursue the two parties for repayment of the funds if they have the assets to do so.

In another case, a company that was only entitled to a loan of £13,000 secured a Bounce Back Loan of £30,000 and once it was received, a director spent nearly £8,000 on personal expenditure. This was in breach of the loan terms which require them to be applied only for legitimate business use. The business owner in question has been banned from being a company director for eight years.

Any business owner who applied for a Bounce Back Loan should check that their application was based upon accurate financial statements and that it was a legitimate claim, particularly if the business is in difficulty and default in repaying the Bounce Back Loan is looming.

To discuss this or any other commercial matter, contact us.