What are the longer-lasting impacts of Coronavirus business support loans?

To say the Coronavirus pandemic impacted the world would be an understatement. Although social distancing and mask-wearing have been largely left in the past, the financial support loans that governments provided are still impacting the businesses that took them out.

While measures such as the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS) have helped thousands of companies stay afloat during the pandemic’s height, they must now be repaid. 

With a still-turbulent economic landscape, this need for repayment means business owners should consider the longer-lasting impacts of these support loans. 

Continued economic turbulence 

While the Coronavirus’ direct impact on the economy has softened, the cost-of-living crisis still dominates the news.

Inflation has driven up the price of fuel, energy, materials, and labour, leading to larger bills for businesses relying on those resources. On top of that, the rise in costs has led to a change in customer spending habits, with people spending less on luxury and leisure purchases, prioritising essentials, and saving where they can on those essentials. 

All this can make for reduced takings and higher outgoings, potentially making it harder for businesses to repay their coronavirus support loans. 

What if the business can’t repay its loan?

While the business support loans provided many with a lifeline during lockdown, if one of those businesses now finds itself unable to repay its loan, it can lead to severe consequences. 

BBLS loans came with a 100% government-backed guarantee, covering the first 12 months from the day the loan was drawn down without accruing interest or requiring repayment. With that first year now up, businesses must repay their loans. While companies have options to extend or alter their repayment terms to make them more affordable, some may still find repayment unfeasible.  

If you’re in this situation, you can speak to the lender who provided your loan about changing the repayment terms. If the company has deeper-rooted insolvency issues, you should contact a licensed insolvency practitioner who can offer regulated advice and, depending on your business’ circumstances, guide you towards the best solution for its problems. 

Acting while you have the option to save the business is better than letting the problems escalate.  

The consequences of misuse 

While the Bounce Back Loans were intended to help businesses stay afloat during the worst of the pandemic, they had strict usage criteria. 

  • These were:  
  • Supporting a company’s day-to-day operations 
  • Paying staff  
  • Running costs
  • Paying suppliers
  • Maintaining cash flow 
  • Investing in the company
  • Purchasing new equipment 
  • Marketing 

Use outside these criteria would be classed as misuse of a Bounce Back Loan, which included:  

  • Personal expenditure outside of business costs 
  • Non-business-related investments
  • Paying dividends
  • Increasing employee or director salaries. 

Bounce Back Loan misuse can result in the directors becoming liable for the debts accrued via the Bounce Back Loans’ funds. If the company becomes insolvent, it will need to enter a formal insolvency process. Which of these will be most appropriate will depend on the business’ circumstances, but could include a Company Voluntary Arrangement, wherein a company repays what it can afford in monthly instalments, or a Creditors Voluntary Liquidation, where the insolvent company is closed, with the unaffordable, unsecured debt written off.  

In insolvency, the insolvency practitioner may pursue you for any misused coronavirus support loan funds. 

Summary 

While coronavirus support loans such as the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS) have provided a lifeline for many businesses, directors may face some longer-lasting impacts now the loans need to be repaid.

The continued economic turbulence could still affect these businesses, potentially impacting their ability to repay their loans. Should that be the case, they should seek advice from a licensed insolvency practitioner before things further escalate.  

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