- Due to the outbreak of COVID-19,
the business bounce back loan
was launched by the chancellor, Rishi Sunak
and applications for the loan have now been extended
to the 31st of January, 2021.
If you have not already done so,
please click on the card above to watch part one
of our Business Bounce Back Loan series.
In this video, we will cover what if I don't pay back
the business balance back loan?
What if I close my company before I pay
the business bounce back loan?
What if I genuinely cannot pay back
the business bounce back loan?
And what happens if I spend the money personally?
Before we get into today's video,
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Additionally, we want to express that this video
is a professional view of us here
at the Accounting and Tax Academy in accordance
with the general terms and guidance
of the bounce back loan scheme
and our professional knowledge and experience
in dealing with similar situations.
Because the scheme is fairly new and government backed,
there are no real precedents to follow us
to how the relevant bodies will actually deal
with the following scenarios in reality.
Now we're going to interpret the word don't in the context
that there is little or no intent to pay back
the balance back loan,
both in terms of the interest and principle
or just one or the other
where the loan cannot be paid back
is dealt with later on in this video.
The first and perhaps obvious point of clarity here
is that this is a loan and not a gift.
It has to be repaid in accordance
with the terms and conditions of the loan agreement
you will have signed, simply not paying back the loan
is not really an option.
If you don't make repayments, when they forge you,
then it is highly probable your lender will pursue
your business for repayments
or worse still further legal action.
Burying your head in the sand or ignoring demands
is likely to land you in even more chaos, stress
and rent up pressure from your lender.
So let's look at an example here.
Your company took out a bounce-back loan of 50,000 pounds
on the 1st of June, 2020 on a six-year term
by the 31st of May, 2021,
the 12 month business interruption interest free period
will have elapsed.
So you decide your company is no longer viable
and wants to close it down.
Now remember that the loan lender is a creditor
and quite simply, you cannot close your company down
in a solvent liquidation until all creditors
have been satisfactorily paid
or they have formally agreed to write off the debt.
A solvent company dissolution is a process
and part of that process is that creditors
are given the opportunity to come forward
and oppose the solvent liquidation
if their debt has not been paid
or satisfactorily dealt with.
Simply filling out ideas SO1 form
to companies house does strike off your company
will not cut the mustard unfortunately.
If this is the case, then we strongly suggest
you approach your lender as soon as possible
and discuss matters with them.
A proactive approach will be looked upon favorably
and they will probably have protocols
and a support team to help and cooperate with you.
If you're trying to ignore the issue
or bury your head in the sand then this will probably lead
to more chaos, stress and no doubt adverse outcomes for you.
The good news is that the chancellor announced new pay
as you grow measures for borrowers who have access
to bounce back loan and to help those who may be struggling.
The measures will provide borrowers
with the option to extend the length of the loan
from six years to 10, make interest only payments
for six months with the option
to use this up to three times throughout the loan
once six payments have been made at request
a six month repayment holiday.
Businesses will be able to use these options
either individually or in combination with each other
as well as having the option to fully repay their loan early
and we'll face no early repayment charges for doing so.
And these will be standardized options available
to all borrowers not just those who are struggling.
And don't forget, lenders are not permitted
to require personal guarantees
for the balance back loan scheme,
for sole traders or small partnerships
who often risk their personal assets
when borrowing the terms of the bounce back loan scheme
means no recovery action can be taken
over a principal private residence
or a primary personal vehicle.
However, other personal assets could be at risk.
The main aim of pay as you grow
is to allow your business enough time to recover
and grow revenues and profit
so we can start to pay down the loan.
In the worst case scenario,
if you have exhausted all attempts to recover your business
or generate sufficient revenue and profits,
then we strongly suggest you speak to your lender
at the earliest junction.
Now, this is a very common question
And in our professional view,
we can provide some guidance more than likely
you will have completed an application form
and signed a loan agreement.
One of the clauses in the agreement
is most probably written as follows.
I/we undertake to use the credit granted
on the basis of this agreement
only to provide economic benefit to my/our business.
I/we also confirm that the bounce back loan
will be used wholly for business purposes
and not personal purposes.
And this applies whether you are a company director,
shareholder or sole trader.
So if you have or intend to use the money for,
let's say personal remuneration or drawings,
that at the moment in itself is not an issue.
There's no one standing over you or monitoring you
and your business as such.
The difficulty is likely to arise
If your business struggles to generate sufficient revenues,
profits and cashflow and perhaps forces you
To call it a day and close down your company.
as a result, if you subsequently are unable
to repay the loan whether in part or full
then your company could be classified as insolvent.
In other words, it is unable to pay its debts
as they become due and your company liabilities
exceed its assets.
An insolvent dissolution is a completely different animal
to a solvent dissolution.
Within insolvent the solution,
your conduct as a director will be brought into question
and if it is suspected you have wrongfully traded,
fraudulently traded or your conduct has been unfit
then you could be investigated
and face disqualification from being a director
for up to 15 years if found guilty.
On a positive note, if you genuinely had
to remunerate yourself reasonably
to keep your business going
as you are no doubt a crucial part of your business
then in our professional opinion,
this should not be cause for concern
so long as you can demonstrate how this action was necessary
in an attempt to generate economic benefit to your business.
We are pretty sure any lender, government agent
or liquidators recognize that in this pandemic,
not all businesses will survive and perhaps even thrive.
There will unfortunately be casualties.
The asset test is the business owners intent and conduct
during this time.
I hope this video has helped you think a little deeper
about the business bounce back loan
and taking you one step closer to knowing your numbers.
As always, let me know in the comments,
your thoughts on today's video
or if there are any other topics
you'd like us to cover in the future.
Finally, be sure to like and subscribe
and this really does help us to get our content out there.
This is Tony Dhanjal for the Accounting and Tax Academy.
Thanks for tuning in.
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