Bounce Back Loans – What You Need to Know If Your Business Can’t Repay

It’s hard to believe that it’s now more than five years since the Government launched the Bounce Back Loan (“BBL”) scheme to support small and medium-sized businesses during the COVID-19 pandemic.

The BBL offered loans of up to £50,000 (capped at 25% of the previous year’s turnover) at a fixed 2.5% interest rate, with nothing to repay for the first 12 months and no interest charged in that time. The Government guaranteed 100% of the loan to the lender, meaning that banks took no risk and applications were processed quickly, often with minimal checks.

For many business owners, this lifeline provided essential breathing space to survive unprecedented trading conditions. Unfortunately, for others, repayment has become increasingly difficult and in some cases, impossible.

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The Current Picture

Recent data from The Insolvency Service shows that over 114,000 BBLs are linked to companies that have either been dissolved or entered liquidation.

Interestingly, the number of BBL facilities (114,752) is slightly higher than the number of companies analysed (113,413), suggesting that some companies took out more than one loan, which is not permitted under the scheme.

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Why This Matters to You

If your company has a Bounce Back Loan and you’re considering closing the business, it’s important to understand:

• A BBL doesn’t stop you from placing your company into liquidation if it can no longer trade or pay its debts.
• If the loan was used for legitimate business purposes, and you acted in good faith, you’re unlikely to face personal liability.
• Misuse of the funds — such as overstating turnover, applying for more than one loan, or using the money for personal purposes can lead to serious consequences including director disqualification, fines, compensation orders, or even criminal prosecution.

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When Misuse Happens

A small minority of directors did misuse the scheme, and those cases have been widely reported.  Examples include:

• A director who inflated turnover to secure two BBLs totalling £80,000, leading to an 11-year disqualification.
• Another who obtained three fraudulent BBLs worth £150,000 and received a two-year suspended sentence.
• A high-profile case where a Dragon’s Den entrepreneur obtained around £100,000 in BBLs and spent it on a £1.8 million home resulting in an 18-month suspended prison sentence.

These stories make headlines, but they are the exception, not the rule.  The vast majority of directors we work with took out their BBL in good faith, used it to keep their business going, and now simply can’t sustain repayments due to current trading conditions.

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Why Early Advice Matters

Trying to strike off (dissolve) a company that has a BBL isn’t appropriate and can result in HMRC or the bank objecting, potentially reinstating the company and taking further action.

If the company can’t repay its debts, the responsible route is usually a Creditors’ Voluntary Liquidation (CVL). This process ensures:

• The company is closed in line with insolvency law.
• Your conduct as a director is reviewed fairly.
• Creditors, including the BBL lender, are dealt with formally.

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How We Can Help

We specialise in helping directors understand their position before making any decisions.
When you speak to us, we will:

• Explain all the options available to you, not just liquidation.
• Review your use of the BBL so you understand any risks.
• Handle the process so you can move forward with clarity and confidence.
• Support you in dealing with the formalities, so you can focus on your next chapter.

You may be surprised to learn that many of our clients with BBLs have gone on to start new ventures successfully after closing their insolvent company without facing any personal penalties.

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Final Word

Taking a Bounce Back Loan was, for many, the right decision at the time. If your business has reached a point where repayment is no longer possible, that doesn’t mean you’ve done anything wrong. What matters now is taking the right steps to deal with the situation properly.

We’re here to guide you through it.

Contact us today for a confidential, no-obligation discussion about your options.