Bounce Back Loans - key points for business owners to consider

Published: 22/07/2024 By Andrew Bailey

Bounce back loans (BBLs) continue to be a topic being discussed with business owners. As an insight into how BBLs interact with insolvency we thought it may be helpful to set out some key observations.

So why are BBLs important now?

They are important because many businesses are still dealing with them and we often encounter them when meeting clients facing insolvency. The questions we ask include:

- Did you apply correctly based upon your turnover levels? Borrowers could take up to 25% of business turnover (recorded in recent accounts or estimated - read the small print). Many businesses borrowed £50,000 being the maximum amount;

- Did you use the funds correctly ie. were they used for the business or as they stated "for the economic benefit of the business"?

Some key points to flag up:

- As part of a Liquidation or Administration process, the office-holder has to report to The Insolvency Service as to whether there has been misuse of the BBL or any other Government support scheme. The purpose of this is to enable The Insolvency Service to pursue directors in cases of misconduct for disqualification.
 
- When considering misconduct with respect to BBLs The Insolvency Service will look at the application process and how the funds were utilised;
 
- Where BBL funds have been extracted by directors for personal use, we often find that they have not been categorised as salary or dividends. It will often give rise to an overdrawn director's loan account;
 
- Where directors seek to dissolve their company with a BBL, this will be objected to and stopped. Any striking off application will be notified in the London Gazette; this is one source where banks (and HMRC) may pick up on a case and stop a striking off. Hence why companies with only a BBL remaining that cannot be repaid will normally look at a Liquidation process to wind down the affairs of a company;
 
- For the bank to benefit from the Government 100% guarantee for the BBL, they must be seen to pursue recovery of the loan through their normal debt recovery processes. Therefore, allowing a company to be dissolved may result in them not being able to claim from the Government under the BBL guarantee.

BBLs are likely to be with us for several years yet, so for those considering an insolvency process it is important to be aware that they remain under scrutiny.