Print article
Author
Author
The Bounce Back Loan Scheme (BBLS) was introduced by the UK government in May 2020 to support small and medium sized businesses during the COVID-19 pandemic. It provided access to low-interest loans to help businesses manage the economic disruption caused by lockdowns and the impact on trade.
Under the scheme, businesses could borrow between £2,000 and £50,000, capped at 25% of their annual turnover. The interest rate was fixed at 2.5% per annum, and the repayment term was initially set at six years. The loans were 100% guaranteed by the government, meaning lenders were protected if borrowers defaulted. For the first 12 months, no interest or repayments were required, and there were no fees for early repayment.
After the initial one-year grace period, borrowers were expected to begin making monthly repayments that included both the principal and interest. To help businesses manage their cash flow, the government introduced the Pay As You Grow (PAYG) options. These allowed borrowers to extend the loan term from six to ten years, make interest-only payments for up to six months (up to three times), or take a six-month payment holiday once during the loan term. These options provided flexibility but did not reduce the total amount owed.
It is important to note that borrowers remain fully liable for repaying the loan, despite the government guarantee to lenders. Failure to repay can result in debt recovery actions, including court proceedings. Additionally, misuse of BBLS funds or false applications may lead to criminal investigations and penalties.
To avoid financial and legal difficulties, borrowers should review their loan documents and repayment schedules, consider using PAYG options if needed, seek financial advice early, and maintain clear records of how the loan was used.
Bounce Back Loans were a vital support mechanism during the pandemic, but they are not grants. Businesses must plan carefully to meet their repayment obligations and avoid default.
Where Bounce Back Loan repayments are placing sustained pressure on cash flow, businesses should also consider whether wider debt refinancing may be a more effective long‑term solution. Taking a proactive approach to refinancing can improve liquidity, rebalance repayment profiles and reduce overall financial risk. For more on this, see our related insight, Why proactive debt refinancing should be on every Finance Director’s agenda and why timing is everything.
How Michelmores can help
Solicitors play a crucial role in helping businesses navigate the complexities of Bounce Back Loan repayment, especially when financial difficulties arise. This includes:
- Assessing Legal Options: Solicitors can help evaluate whether restructuring, negotiating repayment terms, or entering a formal insolvency process is appropriate for your situation.
- Negotiating with Lenders: While the PAYG scheme offers standard flexibility, solicitors may assist in negotiating bespoke arrangements with lenders, especially in cases of hardship or dispute.
- Protecting Directors and Sole Traders: If there is a risk of personal liability due to alleged misuse of funds or company dissolution solicitors can advise on how to mitigate exposure and respond to investigations by the Insolvency Service.
- Managing Insolvency Procedures: For businesses unable to repay their loans, solicitors can guide them through formal insolvency processes such as Company Voluntary Arrangements (CVAs) or Individual Voluntary Arrangements (IVAs), ensuring compliance and protecting assets where possible.
- Responding to Legal Claims: If a liquidator or government agency initiates proceedings, solicitors can represent directors or sole traders in defending claims, including those related to director disqualification or fraudulent trading.
- Selling a Business with Outstanding Loans: Solicitors can advise on how to structure a sale whether by shares or assets while managing the implications of outstanding Bounce Back Loan debt.
Legal advice is especially important if you are considering insolvency, facing enforcement action, or unsure about your responsibilities. Early engagement with a solicitor can expand your options and reduce the risk of personal or financial harm.