Bounce-back loans - current state
Posted on 27th February 2022 at 16:36
PwC initial suggested there would be around £4.9 billion of fraud associated with the Bounce Back Loan Scheme, which it subsequently reduced to £3.5 billion.
A number of loan schemes were created in the pandemic help support businesses. These include bounce back loans, the CBILS and the CLBILS (for larger companies) which paid a total £80 million to businesses in the UK.
The largest of these schemes was the Bounce Back Loan Scheme that paid out over £47.36 billion in to around 1.6m recipients, with amounts up to £50,000 available to companies that would have faced extreme financial pressures without them.
Spike in Fraudulent loans
Due to the speed that these loan schemes were implemented, and the fact that the Government backed them 100% - meaning taxpayers would pick up the tab for any loans that were not repaid – there was predicted to be a considerable amount of fraud.
Lord Agnew, the former minister for counter-fraud described fraudulent loan claims as “nothing short of woeful.” Agnew stated what he described as “schoolboy errors” such as the fact that over 1,000 companies in the UK were receiving these loans despite not even trading when the pandemic hit.
What to do if your business needs additional business loans
However, for the millions of companies these loans helped, there has been considerable benefit. They were applied for through business banks and you could get up to 25% of the self-certified annual turnover, or £50,000 – whichever was less.
Many businesses applied for these loans due to the fact that the 2.5% interest rate was extremely low in comparison to other business loans available. As well as this there is the option to repay the loan over a 6 year period and you can even extend this to 10 years, with the Government covering interest payments for the first year alone. It’s important to remember that loan interest can be offset against tax.
However, the Association of Taxation Technicians (ATT) explains that there are some barriers you can avoid. They say “Be particularly careful if your business needs any other source of funding during the life of the bounce back loans taking any form of security, mortgage, charge pledge, lien or encumbrance over its assets whatsoever. You must check this is allowed under the loan terms, and often it is not.”
What NOT to do if your business becomes insolvent
It would be a possibility to pay these loans out personally in the form of a director’s loan or dividend (provided reserves are available). If your company was to become insolvent then you may be asked to repay these dividends as it is not possible to pay a dividend from an insolvent company. Personal use, in the form of a director’s loan could put your personal assets at risk.
We can help you
If you are concerned that your BBLS haven’t have been used for the correctly , or that business risks could leave your company insolvent thus leaving you personally exposed, then please contact us and we will explain the best course of action.
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