What happens if I can't pay my bounce back loan?

It is the responsibility of the business to pay back the bounce back loan once monthly repayments begin, following the initial 12-month grace period.

Technically, there are no grave repercussions if you default on your bounce back loan. You won’t lose any assets, and it will not directly affect your credit score either. In the first place, credit checks are not mandatory for application to the loan scheme.

However, some banks do say that they will take defaults in consideration for standard loan applications in the future. Bank lenders are also instructed by the government to recover loan payments following standard procedure. They also reiterate that they’ve been clear about these loans being repayable and not just grants that can be written off if SMEs refuse to pay. Furthermore, bank lenders are still the ones to make the final decision with regards to the approval of the loan.

Banks will chase for unpaid bounceback loans in much the same way as they would try and recoup any other unsecured loan. This could involve dealing with debt collection agencies, court action and potentially bailiffs.

The Government and the banks have talked about establishing a panel of debt collection agencies that would all follow an agreed code of practice. This is because lenders can only claim on the Government 100-per-cent guarantee once a debt collection agency has exhausted chasing repayment.

The sooner you pay off your loan once interest is charged, which you can do without a penalty charge, the less it will cost you overall. Call us to find out what your options are.

If the company becomes insolvent and subsequently enters a formal insolvency procedure, such as Creditors’ Voluntary Liquidation, then responsibility for repaying the Bounce Back Loan will remain solely with the company and liability cannot and will not be transferred to directors or other shareholders provided they comply with their statutory and fiduciary duties as a director. This means there is no risk to a director’s personal assets or individual credit rating should their company not be in a position to repay the loan.

If the bounceback loan was taken out as part of a sole trader business, then some personal liability may attach. However, provided the sole trader can evidence that use was made for the business, there are options available.

A bounce back loan is an unsecured debt. If the company must liquidate, the lack of personal guarantees associated with the loan means it’s treated as an unsecured debt. Unsecured debts are rarely paid in full on liquidation. In that case, as the Bounce Back Loan is secured by the Government, the lender will pursue the Government for repayment in full. Unsecured debt is written off once the company is liquidated, so you won’t be personally liable. Responsibility to repay the Bounce Back Loan remains solely with the company and liability will not be transferred to you as a director or other shareholders, provided you have complied with your duties as a director.

This means there is no risk to your personal assets or credit rating should your insolvent company not be able to repay the Bounce Back Loan.

However, during liquidation, a liquidator investigates your company’s financial history leading up to and during the insolvency, and if they find evidence that you have improperly used your bounce back loan, they could make you personally liable for the debt.