Before you start wondering about what would happen if you were to default repayments to Bounce Back loan, it is important to understand how it works. Let us discuss what BBLS is.

The pandemic has lead to troubling and challenging times, especially for small to medium-sized businesses (SMEs) that depend on their day-to-day operation to survive. With almost the entire nation having stayed indoors during the pandemic, these businesses are in the brink of collapse as an aftermath.

For times like these, effective measures by the government were the only way to ensure the survival of most businesses in the UK.

The UK government thus launched a loan program for SMEs – The Bounce Back Loan Scheme (BBLS).

To both lenders and borrowers, the BBLS is probably what they’d consider the most “ideal” loan. Lenders undertake no risk for loaning out money and borrowers face no immediate penalty or consequence should they fail to repay the loan.

The Bounce Back Loan Scheme is a 100% government-backed loan. This means that the lender will not be asking for any personal assets of yours to hold as collateral or guarantee. Because the UK government fully backs the loan, once you meet the minimum requirements, you can already avail of it. The UK government becomes your guarantor and will technically be held liable to the lender should default on the loan.

The Bounce Back Loan Scheme is capped at £50,000. The 2.5 per cent interest rate of the loan is also covered by the government for the first year which means that lenders are already guaranteed the 1-year interest for each of approved applications.

So, What Will Happen To You If You Default On Your Bounce Back Loan

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 unrepaid Bounce Back 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.

What happens to Bounce Back loan if a company goes bust?

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.

If you need help understanding the best way forward for your company, use our live chat during working hours, or call us on 0131 297 7899. We’ve helped 1000’s of directors navigate difficult financial circumstances.