During the COVID-19 pandemic, Bounce Back Loans (BBLs) provided a crucial lifeline for many UK businesses. However, once the repayment period began, some companies struggled to meet their obligations, and that pressure is still being felt years later.

A common question that arises is whether it’s possible to write off a Bounce Back Loan. As an accounting services provider working across a whole range of sectors and with numerous businesses, we felt it prudent to explore this topic and the options available to businesses facing repayment difficulties.

Is it Possible to Write Off Bounce Back Loans?

First and foremost, it’s important to understand that Bounce Back Loans cannot be simply ‘written off’ in the traditional sense. These loans were provided with the expectation of repayment, despite being government-backed.

The government guarantee was designed to encourage lenders to provide funds quickly during a crisis, not to absolve borrowers of their repayment responsibilities.

BBL Repayment Options for Businesses 

While outright loan forgiveness isn’t an option, the government has introduced measures to assist businesses struggling with BBL repayments:

1. Pay As You Grow (PAYG) Scheme

The PAYG scheme offers flexibility to businesses finding it challenging to stick to their original repayment terms.

Options include:

• Extending the loan term from six to ten years, reducing monthly payments
• Taking up to three six-month periods of interest-only payments
• Pausing repayments entirely for up to six months (in addition to the initial 12-month payment holiday)

These options can provide much-needed breathing space for businesses experiencing cash flow issues.

2. Negotiating with Lenders

If your business is facing financial difficulties, it’s crucial to communicate with your lender. They may be able to offer additional support or customised repayment plans beyond the PAYG scheme.

Consequences of Non-Repayment

Failing to repay a Bounce Back Loan can have serious consequences:

1. Credit Rating Impact: Non-payment will negatively affect your company’s credit score, making future borrowing more difficult and expensive.
2. Legal Action: Lenders may pursue legal action to recover the debt, potentially leading to county court judgements (CCJs) against your company.
3. Personal Liability: In certain circumstances, company directors may become personally liable for the loan. This can occur if there’s evidence of fraud or if the loan wasn’t used to provide “economic benefit to the business”.
4. Insolvency Proceedings: If repayment is impossible, the company may need to enter formal insolvency proceedings.

Insolvency and Bounce Back Loans

In cases where a company becomes insolvent, the treatment of the Bounce Back Loan depends on the specific insolvency procedure:

• Liquidation: During liquidation, the BBL becomes unsecured debt. If the company cannot repay, the government will step in to repay the lender under its guarantee.
• Company Voluntary Arrangement (CVA): A BBL may be included in a CVA, potentially allowing for reduced repayments as part of a broader debt restructuring plan.

It’s crucial to note that entering into insolvency proceedings should be a last resort and done under the guidance of a licensed insolvency practitioner.

A Word of Caution

While it might be tempting for struggling businesses to consider dissolving the company to avoid repaying a Bounce Back Loan, this approach is both illegal and risky. Insolvency practitioners have been given increased powers to investigate BBL misuse, with the ability to ban directors for up to 15 years in cases of malpractice.

Overcoming BBL Repayments

While Bounce Back Loans cannot be written off in the traditional sense, there are options available for businesses struggling with repayments. The Pay As You Grow scheme offers flexibility, and open communication with lenders can lead to manageable solutions. However, it’s crucial to approach the situation responsibly and ethically.

If your business is facing challenges with repaying loans, it’s advisable to seek professional advice from an accredited financial advisor who can help you understand your options and find the best path forward.

At Hamlyns, we provide professional accounting and business advisory services tailored specifically to help you overcome your obstacles and achieve growth. We work with a wide range of businesses, from startups, self-employed professionals and sole traders to limited companies, partnerships and established enterprises.

Don’t let the prospect of a loan deter your business progress – explore your available options to see this through while setting your business up for the future. Whether it’s budgeting and forecasting or long-term strategic or succession planning, we are here to help throughout every stage of your business lifecycle. Contact Hamlyns today to see how we can be an asset to your company’s success, whatever your obstacles.