What to do when a company can’t pay its Bounce Back Loan

The Bounce Back Loan Scheme

Government figures show that more than 1.5 million Bounce Back Loan Scheme (‘BBLS’) applications were approved at the beginning of, or during, the Covid 19 pandemic, with the value of the approved facilities exceeding £47 billion. Loans provided to small and medium-sized businesses under the BBLS ranged from £2,000 to £50,000. The terms of the loans range from six to ten years, with repayments beginning twelve months after the company received the loan.

The Department for Business, Energy & Industrial Strategy (BEIS) has estimated that there could be up to £27.9 billion worth of defaults on the BBLS loans. That equates to more than 900,000 loans being defaulted on. For a sense of the magnitude of the sums involved, that would be 86% of the United Kingdom’s defence budget for 2022-23, or more than three times the cost of building NASA’s James Webb telescope and putting it into an orbit 1 million miles from Earth.

How to restructure a Bounce Back Loan & other debts

1. Discuss with your lender for options

Any company that finds itself in a position where it cannot maintain repayments on its bounce back loan should approach its lender as the first port of call to discuss its difficulties and the options available to the company. The lender could offer the company a reduction in their loan repayments for six months. Which would mean only the interest on the loan will be repayable for that period. The lender could also agree to a six-month repayment holiday. This could afford a company some respite from cash flow difficulties, and the opportunity to re-assess issues such as customer payment terms, supplier payment terms, or cost savings the business could make.

2. Negotiating with HMRC for flexibility on repayment terms

Longer term, businesses may need to consider strategies that enable them to manage liabilities sustainably and on an ongoing basis. The first step is often to establish what the company’s total liabilities are; to whom those liabilities are owed; and what the repayment terms of each liability are. A plan can then be formulated to ascertain whether the company has enough income to meet all of its liabilities as they fall due. If it doesn’t, might there be some flexibility in repayment terms, like the flexibility available in the BBLS? Can the company approach HM Revenue & Customs, finance providers, investors, or suppliers to discuss its situation? The company will need to be able to explain to these parties what it proposes to do to remedy its cash flow problems, how that will involve these third parties, and ask if they have any scope for flexibility on repayment terms. These parties will often appreciate dialogue and, although there are no guarantees, may be more open to finding ways to accommodate the company than they would be if payments are remitted late or are missed completely.

3. Prepare cash flow forecasts to gain a sense of control over your cashflow

Those in charge of the company need to ensure they have a detailed understanding of how and when cash moves in and out of the business and how much is needed on a month-to-month basis to keep things running smoothly. Preparing cash flow forecasts can help with this. They can be an opportunity to assess whether there are areas where cost savings can be made, if systems for approving expenditure can be better controlled, if there are times when less stock can be carried, whether customers pay on time, or are followed up systematically if they don’t. These forecasts may also present an opportunity to negotiate with suppliers so the company can pay when its debts at a time in the month when it’s cash-rich, rather than incurring more credit or dipping into an overdraft.

The Bank of England expects inflation in the United Kingdom to rise to 11% in 2022 and some economists believe the possibility of the United Kingdom going into a recession is now an even money bet. Notwithstanding the implementation of the strategies noted above to manage bounce back loans and cashflow could result in some companies not being able to generate enough income to meet ongoing costs and long-term liabilities.

4. Reach out to an insolvency practitioner to wind up the company formally

If a director forms the view that a company is not going to be able to meet its liabilities as they fall due, by law they must seek advice from an insolvency practitioner. The insolvency practitioner may be able to review the company’s financial information and suggest a way out of the predicament. But if not, they can advise the directors on the steps they need to take to close the business and wind up the company lawfully.

Given the sheer number of bounce back loans that have been provided, it is an inevitability that some companies will not be able to maintain repayments, despite earnest efforts to restructure the loan. It is incumbent on company directors who realise that their company cannot maintain BBLS repayments that they seek advice early.

How we can help

Our expert team of licensed Insolvency Practitioners and staff can discuss the options available to you. We are here to navigate you through this so please call us at 0800 652 0002 or contact us here today.

5 ways to rescue your business

If you require help, get in touch or download our FREE guide with some top-tips you may not have considered.

Download our free guide to see 5 ways to rescue your business that you didn't realise were an option

If you require help, get in touch or download our FREE guide with some top-tips you may not have considered.