Bounce Back Loans

Posted by emmaandrews - September 22, 2021 11:16 am Company Bounce Back Loans- how have you spent it?

Over the past 18 months, the Bounce Back Loan Scheme (BBLS) has provided invaluable support to businesses struggling with the effects of coronavirus. Aimed at small businesses, these loans were designed to give businesses the resources to ‘bounce back’ quickly once trade was able to fully resume.

If you run a limited company, the money from your Bounce Back Loan belongs to the company as a separate entity. So how can you spend your company Bounce Back Loan, and is there any type of spending that is not permitted?

What can I use the BBLS money for?

The criteria for Business Bounce Back Loans is fairly broad. The loan must be used to provide an ‘economic benefit’ to the business.

This means you can use it for:

  • Paying staff salaries (including your own)
  • Paying suppliers
  • Paying off existing loans (see below Preference Payments)
  • Paying utility bills / overheads
  • Providing a cash reserve to maintain cash flow
  • Any other necessary business running costs

The government have made it clear that you can use a BBLS loan to support your income. However, you cannot use it to pay dividends (unless there is a profit on your balance sheet but you do not have the cash to pay it out as a dividend). You can use it to pay salaries, but not to increase them. Therefore, if you as director/shareholder usually take most of your income as a dividend, you may not be able to take your full usual income from the loan. Bounce Back Loans must not be used for personal purposes.

Preference Payments

The loan can also be used to refinance existing borrowing however, if a director chooses to pay off debts that he or she would be personally liable for if the company was liquidated, leaving unsecured creditors unpaid, this is likely to be seen as misconduct through making the secured debt a preference.

Director’s Personal Liability

Directors could face possible personal liability for repayment of a Bounce Back Loan should it not be used in accordance with the declarations made during the application process, or if directors utilise this borrowing to clear personally guaranteed debt at the expense of other creditors and the company no longer be able to meet the loan requirements.

Help from MFW

If you believe that you may have used a Business Bounce Back Loan in a way in which it was not intended, please contact your MFW office and they will be able to advise you on the best way forward.