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Wish To Know | What Happens If You Can’t Pay Back Your Bounce Back Loan

Paying off your loan for bounce-backs

The government announced in February 2021, that companies that took out government-backed loans would have more leeway in repaying their loans. So, stop wondering what happens if you can’t pay back your bounce-back loan

Borrowers will have the choice to customise payments to suit their unique needs. Through the pay-as-you-grow program, they could postpone repayment for an additional six months, allowing businesses to choose to defer repayment on their loans until 18 months after they took them out.

Borrowers can also extend the length of their loans from six to ten years and pay only the interest for the first six months. This lets them make their repayment plan fit their own needs. And this was how the government’s “bounce-back loan scheme” worked.

In addition, the government will pay the interest fees for the initial year of the loan.

However, 

What Happens If You Can’t Pay Back Your Bounce-Back Loan

Although it is hoped that these plans will help businesses get through this challenging time, some will undoubtedly fail and not be able to pay back their business bounce-back loan or debts. 

If you can’t pay back your loans or other debts, or if you think you might have trouble doing so in the future, you need to talk to an insolvency practitioner as soon as possible.

If you don’t get help, you may be putting yourself at risk if a business can’t or might not be able to pay back a loan or creditor.

Even though there are less rules against wrongdoing in trading, there are still rules against misfeasance, preferences, and transactions at prices below market value.

When a company can’t pay back any debts or loans but has paid money to other creditors, like connected parties like directors, repaid personal guarantee debts, or paid dividends, this is a breach of a director’s duty. Directors could be put in danger, or a deal like that could be questioned and thrown out.

Cash Flow Problems Can Be Solved In Many Ways

> Pay–as–you–grow

The following choices are provided to borrowers under the pay-as-you-grow plan:

  • Increase the loan’s term from six to ten years.
  • Pay interest only for six months; you may do so up to three times during the loan’s term.
  • For up to six months, stop all payments.

> Time–to–pay

A time-to-pay arrangement is a way to spread out your business tax payments over a longer period of time. In an effort to give the company some breathing room and enable cash flow to improve, an agreement is reached between the business and HMRC.

> Options-For-Bankruptcy

Consult an insolvency professional as soon as you can if:

  • You have already benefitted from the pay-as-you-grow program.
  • You cannot apply for the pay-as-you-grow program.
  • You are not allowed to sign a time-to-pay contract.

If any of the aforementioned situations apply to you, the options are as follows.

Organization-Sponsored Arrangement (CVA)

A CVA is a way to save a business. It is a legally binding agreement in which creditors are paid over a set period of time, and the company might be able to keep doing business.

An insolvency practitioner is put in charge of the CVA to make sure the company is following the rules and that the agreed-upon funds are given to the creditors.

Administration

The goal of an administration is to save and revive businesses that have gone bankrupt but could still be successful.

An insolvency practitioner is chosen to be the administrator so that the company’s affairs, business, and property can be run in the best way for all of its creditors. They should:

Saving the company as a going concern is better for the company’s creditors as a whole than letting it go out of business without going through administration first.

Use the company’s assets to pay off one or more secured or preferred creditors.

Liquidation

A formal insolvency procedure known as “liquidation” entails the directors of an insolvent company voluntarily deciding to wind up the business. The business will stop operating and hiring staff members. When a business is liquidated, its debts are settled with the help of its assets with the help of a liquidation advice person. 

Nevertheless, following advice does not always result in filing for bankruptcy. In fact, your company will have the best chance of recovering if you consult an insolvency professional as soon as you suspect a problem.

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