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Limited Company Directors: Repaying Your Bounce Back Loan

Limited Company

Launched in May 2020, the Bounce Back Loan Scheme (BBLS) was designed to help smaller businesses that were impacted by Covid-19 and a significant number of contractors have taken advantage of the BBLS to get their Limited company through the pandemic. In this article we’re clearing up some of the most common questions we’ve received about them.

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What was the BBLS?

The Bounce Back Loan Scheme allowed businesses to borrow up to 25% of their turnover, up to a maximum of £50,000 over 6 years, from one of 20 participating lenders. Repayments start after 12 months, with the first year’s interest being covered by the Government. Loans were backed by the Government so there was no risk to the lender. The scheme closed to new applicants on 31st March 2021.

What the BBLS was intended for?

If you took out a BBL through your Limited company, the money from the loan belongs to your company, not to you personally. The terms of the scheme state the loan is intended to be used as “working capital” - for cash flow to enable your company to carry on doing what it normally does.

If you used the BBL to support your personal income 

We strongly advise that you speak to your accountant about your specific circumstances, particularly if you’ve taken out a BBL and you’ve already withdrawn the money from your company bank account.

Your options if you have a BBL

No repayments are due during the first 12 months and you won’t have to pay any interest. You can repay your loan early without paying a fee.

Before your first payment is due, the lender should be in touch to discuss your options. At this point you may want to:

  • Extend the term from 6 years to 10 years
  • Move to interest-only repayments for 6 months
  • Pause your repayments for up to 6 months

Using any of these options will increase the amount of interest you pay on your loan.

What if you are no longer trading through your Limited company?

This will depend on the reason why you’re no longer trading through your company, and whether you intend to use it again in the future. If your company is solvent and you want to close it, your BBL should be repaid as part of this process. If you’re temporarily doing something else, you might want to make payments into your company account to cover the loan repayments while you’re not trading. Again, we recommend that you discuss your situation with your accountant.

Can you make your Limited company bankrupt?

As the BBL was taken out by your company, the debt could theoretically be written off if you make your company bankrupt. However, there are serious consequences for doing this, and you should not take this action without seeking professional advice and considering your options carefully.

If you do go down this road, you can expect the insolvency practitioner to scrutinise your company’s finances with great care, so it’s very important that you can account for how the money from your BBL was spent.

 If you have questions or if we can help in any way, please call our expert team on 01296 468483 or email info@orangegenie.com

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