What should I do if my business is struggling to repay a Bounce Back Loan?

Full answer

Bounce Back Loans, introduced as emergency Covid-19 support for small businesses, remain outstanding for many businesses years later, and repayment difficulties are still a live issue for a meaningful number of borrowers navigating a challenging trading environment. **The Pay As You Grow flexibility options** The government-backed Pay As You Grow scheme was specifically designed to give struggling Bounce Back Loan borrowers flexibility, including: extending the original six-year loan term up to ten years (reducing monthly repayments, though increasing total interest paid over the loan's life), switching to interest-only payments for up to six months (available up to three times over the life of the loan), and taking a full repayment holiday for up to six months (available once). **Contact your lender before missing payments** The single most important action if you are struggling is to contact your lender proactively BEFORE missing a payment -- lenders are generally required to discuss forbearance options with struggling borrowers, and engaging early significantly improves your options compared with simply missing payments and waiting for the lender to chase you. **What happens if you default without engaging** If a business defaults on its Bounce Back Loan without engaging with the lender, the lender can pursue recovery action against the business, and because Bounce Back Loans were unsecured against specific business assets but were backed by a government guarantee to the LENDER (not the borrower), defaulting can still result in formal debt recovery action, insolvency proceedings against the company, and significant damage to the business's (and potentially the director's) credit file. **Personal liability: normally none, unless fraud is involved** A key feature of Bounce Back Loans was that they were NOT typically secured by a personal guarantee from the director (unlike many other forms of small business lending) -- meaning if the company genuinely cannot repay and enters insolvency through no fault or misconduct of the director, the director's personal assets are not normally at risk purely because of the Bounce Back Loan itself. **When personal liability CAN arise** This protection can be lost if there is evidence the loan application contained false information (for example, overstating turnover to secure a larger loan than the business was entitled to), if loan funds were used for purposes outside the permitted business use (such as personal spending unrelated to the business), or if there is evidence of wrongful trading or fraudulent conduct by the director around the time of insolvency -- in these situations, personal liability and even disqualification as a director can follow, so directors should keep clear records showing the loan was applied for honestly and used appropriately. **Insolvency practitioner involvement** If a company with an outstanding Bounce Back Loan is heading toward insolvency, an insolvency practitioner will review how the loan was obtained and used as a standard part of the insolvency process -- honest, well-documented use of the funds for legitimate business purposes is the best protection against personal liability concerns arising from this review. **Worked example** A small retail business took a £50,000 Bounce Back Loan in 2020 and has struggled with reduced footfall and rising costs since. Rather than missing payments, the director contacts the lender and arranges a Pay As You Grow term extension from six to ten years, reducing monthly repayments to a level the business can sustainably manage, alongside a temporary six-month interest-only period to help through a particularly difficult trading quarter. **Practical tip** If you are struggling with Bounce Back Loan repayments, contact your lender as early as possible to discuss Pay As You Grow options, keep clear records showing the original loan was used appropriately for legitimate business purposes, and seek advice from an insolvency practitioner or business debt adviser if the difficulties are severe enough that the business's viability itself is in question.

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