Taking more of your bounce back loan than you're legally allowed to

Taking more of your bounce back loan than you're legally allowed to

May 4, 2022 by Sandra

Bounce Back Loan schemes were capped at £50,000 from banks participating in the initiative in May 2020, and repayments were interest-free for a year followed by 2.5 percent after that.

What if your small business took more than you’re legally allowed to? Our experts will cover this issue and what you can do.

How would my business get more money than it was entitled to from the Bounce Back Loan?

This could happen in several ways, including:

The bank not realising your business was created after 1st March 2020.

Only businesses trading or in operation before that time were eligible. No credit checks were needed for a Bounce Back Loan (BBL) application, and any faulty information without due diligence might have slipped through during the quick approval process.

Your finance department applied for multiple BBLs at once when the program first started.

There were 860,000 Bounce Back Loan applications in the first six weeks alone. If your small business applied for more than one Bounce Back Loan and you were approved for both, you may have to pay back both.

Funds were never used for the company’s expenses.

Yes, business owners could pay their own salaries, but the business couldn’t pay off debts on vehicles, personal homes, or even refinance other debts. The point of the BBL scheme was to pay employees and keep the company operational.

Misstating the turnover of the company.

Companies with higher turnover received higher loan amounts. You should have stated the accurate turnover of the company and the number of employees during the Bounce Back Loan application process.

Exaggerating other claims about the company

This is likely to have taken place in order to get higher loan amounts.

Choosing not to pay back the loan whatsoever.

You must at least try to pay back the loan in good faith.

If your business is still insolvent, you may still need to pay back the BBL. Bankruptcy and financial problems are another matter. Liquidating the company through a CVL obviates your BBL debt completely.

Steps to take if you took more money than allowed from a BBL

If you took more money than allowed, that’s not a good situation, particularly if you’re having trouble paying your creditors.

Discuss the situation with your bank or insolvency experts

First, talk to your creditors. See if there were any mistakes and find out where they came from. Review your Bounce Back Loan application to see if everything was in order.

You can also discuss the situation with business insolvency experts familiar with the process. Insolvency experts will see what happened from an objective third part and suggest the proper course of action.

What you don’t want to have happen is prosecution and court proceedings in the Crown Court. Those could tie your hands for six months to a year, during which you won’t be able to participate in any business activity while you’re under investigation.

Start making payments if you haven’t already

Start making payments on the loan. If your business is insolvent, you can’t dissolve it until you pay back the loan in full. Remember that dissolving a company has little to do with a failure of finances. It has to do when the company no longer serves a purpose.

If you want to close your business and strike it off completely, that takes a very specific process. If it’s not done properly, you could still owe the money.

Cooperate with any authorities

Do what the authorities tell you to do. Cooperate with authorities if they execute a warrant. Lying to them or lying under oath will only make your situation worse, and you could face more fines and penalties.

Recognise that prosecutors would rather you pay off the loan than not. Prosecution is a last resort, and it only happens after enough evidence of fraud is brought to the authorities.

Realise that others are just like you

Not making loan payments is a fact of life. But if your company is insolvent, it’s your job as a director to pay your creditors first, including Bounce Back Loan funds. Be wary of preferential loan payments. If you pay some loans but not others, you may be in breach of your director’s duties and you’ll face other penalties.

If you’re having trouble paying back the loan, you’re in the same boat as about 100,000 other directors. As of March 2022, about 100,000 BBLs are at least one month in arrears. Just a year and a half after the loans went out, £2 billion were paid in full while £1.3 billion was in default.

Contact the McAlister & Co team

The licensed insolvency practitioners of McAlister & Co specialise in liquidation. If you have questions about the Bounce Back Loan program or you believe you’ve gotten more than what you should have, contact our team and we’ll advise you as a partner in your corporate journey.

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