Bounce-back loan

[Jag1990]

Can a bounce back loan be used to repay yourself money you lent to the company?

so, a directors loan TO the company?

thanks

 

[Scalloway]

I don't think there are any restrictions on how you spend the money, you just have to pay it back when the time comes.

 

[estwig]

Definitely get your money back, it's better in your pocket than in the business, especially as the business now has the BB loan money.

 

[billybob99]

If you need a BB loan to do that, is the business gonna last much longer.

 

[Mr D]

If you need a BB loan to do that, is the business gonna last much longer.

No reason it shouldn't.

 

[Red Wood]

If you need a BB loan to do that, is the business gonna last much longer.

I'm sure many of us with a wide range of business sizes have money invested in our companies. I think it is a good idea to take any personal capital out to replace with government-backed money. We were forced to abide by their rules during the lockdown, I for one will be taking capital back out

 

[jimbof]

Can a bounce back loan be used to repay yourself money you lent to the company?

so, a directors loan TO the company?

thanks

I think you would need to take some professional advice on this to get a definitive answer that you could have some confidence in / indemnity if the wolves come knocking later.

The agreement I signed said this:
"I/We undertake to use the credit granted on the basis of this agreement only to provide economic benefit to my/our business, for example, providing working capital, or investing in my/our business. I/We also confirm that the Bounce Back Loan will be used wholly for business purposes and not personal purposes."

I can't see how you satisfy this in the case of a director's loan (what economic benefit is it to the business to pay back a loan that probably has no interest charged?) UNLESS you are already charging the company a higher rate of interest than the BBL. In that case there is an (albeit I guess very slight) economic advantage to clearing the loan.

It is likely the only real advantage here is to you personally, which will fall foul of the test above.

 

[Red Wood]

I think there is more nuance involved in this case. We were forced to look down whether people wanted to or not. If it wernt for the BBL, the exact same amount of working capital would be at risk anyway. The government has accepted this responsibility hence the introduction of a wide range of finance packages & support.

Replacing some of a DL with a BBL I see absolutely no conflict in this as long as all monies are repaid.

 

[jimbof]

I think there is more nuance involved in this case. We were forced to look down whether people wanted to or not. If it wernt for the BBL, the exact same amount of working capital would be at risk anyway. The government has accepted this responsibility hence the introduction of a wide range of finance packages & support.

Replacing some of a DL with a BBL I see absolutely no conflict in this as long as all monies are repaid.

Sure, but it's not provided as a means for you to de-risk your own personal capital out of the business (particularly not pre-COVID loans), it is for economic benefit to the business. There's no ambiguity in what you sign up to - that was verbatim out of the Govt section of the agreement - you can choose to re-interpret of course as fits your motive...!

Of course, if you pay it back it is very likely no-one is going to care much about anything. But surely one of the big reasons folk might be trying to take their own money out of the business is because they're concerned about the risk to their own capital (they may already think they're on the skids and this is a way to settle themselves up at the taxpayer's expense).

If you end up folding the business with an outstanding BBL I'm sure it will be likely questions will be asked about the circumstance that lead to it, and if your accounts or bank statements show something amounting to a director's loan paid back to you just after receiving the BBL and not long before the company went belly up, then I think there will be questions asked about that (particularly if the DL predates COVID significantly - if it post-dates it you can easily argue that the BBL could have been taken at that point anyway).

There are similar issues with receiving a BBL and immediately giving yourself a massive payrise.

 

[Mr D]

Though it could be argued that removing the directors loan enables the director to live on that money, not needing so much or perhaps any money to be drawn out of the business to live on.

Sadly those of us who invest in our own businesses may end up in a situation whereby we have to pay mortgage and eat...

 

[Red Wood]

Of course, if you pay it back it is very likely no-one is going to care much about anything. But surely one of the big reasons folk might be trying to take their own money out of the business is because they're concerned about the risk to their own capital (they may already think they're on the skids and this is a way to settle themselves up at the taxpayer's expense).
.

I think the majority of people are concerned about business outlook considering we've just had one of the most damaging events to happen in the last 50 years. There are of course a minority percentage who it won't effect due to their sector or vast reserves of capital (i.e the big boys).

I also very much agree with Mr D. Refinancing, which I believe I've read is OK is essentially all that it is.

Taking the loan and folding knowing you were barely solvent before is of course another kettle of fish which shouldn't be conflated with this particular topic.

 

[jimbof]

I think the majority of people are concerned about business outlook considering we've just had one of the most damaging events to happen in the last 50 years. There are of course a minority percentage who it won't effect due to their sector or vast reserves of capital (i.e the big boys).

I also very much agree with Mr D. Refinancing, which I believe I've read is OK is essentially all that it is.

Taking the loan and folding knowing you were barely solvent before is of course another kettle of fish which shouldn't be conflated with this particular topic.

I don't think there was any steer as to the current state of the OP's company; it is quite possible they are in precisely that situation . My initial reply was to them, and wasn't insinuating anything about your own position.

There is an interesting article here that explains you need to be careful about "misfeasance" in clearing off debt which is personally guaranteed over other debt. https://www.realbusinessrescue.co.u...nal-liability-and-alternative-funding-options

Paying a director's loan back using cash from a BBLS if there are other debts would equally be misfeasance.

I think if you feel you need to ask the question if you can do it or not, you should look carefully around the circumstances of what you are doing and why, and consult with a professional if in doubt.

 

[Red Wood]

Interesting. So I'm assuming if all trade creditors can be paid by normal means and the only external cash funding being used is in the form of a DL then there is no issue with being preferential as you have a grand total choice of 1.

I like the article consistently pointing to take professional advice, with a number provided

 

[jimbof]

Interesting. So I'm assuming if all trade creditors can be paid by normal means and the only external cash funding being used is in the form of a DL then there is no issue with being preferential as you have a grand total choice of 1.

I like the article consistently pointing to take professional advice, with a number provided

Just to be clear, that article is nothing to do with me. I design electronics for a living...! I just thought it was useful in illustrating how these things aren't totally straightforward, and while you could choose to pay the cash anywhere you want (today) it's not clear it won't be challenged (tomorrow). If you google a bit you can find lots of examples of preferential payment of directors loans being treated as malfeasance during the winding up of a company.

I don't know why you'd think it would be ok to limit to trade creditors - what about HMRC? They're the biggest creditor that most often seems to be forgotten about... I believe they're also the ones most likely to contest the winding up of a company, and given recent publicity probably the ones most likely to dig into the ins and outs of what CV19 support was taken and how it was used, what happened around directors loan accounts, etc.

There is still the question of the funds not having been used for the economic benefit of the business, which is the sole purpose for which they are provided - there are numerous sources for this information - the British Business Bank, the agreements provided by your own bank on signing up, etc. Unless I misunderstand the legalities; it is hard to contrive an argument whereby a zero interest directors loan, being replaced with an interest bearing commercial one, is an economic benefit to a business. Of course consolidating a load of higher interest loans into a low interest BBLS is clearly a benefit.

What is the argument that you think can be made that satisfies the economic benefit to the business of paying off the director's loan?

@Mr D I don't buy "me not having to take money out of business by other means" as an economic benefit. The company can either afford to pay you dividends or it cannot. I guess if it has a big director's loan, it cannot... And a BBLS doesn't add to the pot you can take dividends out of...

 

[Red Wood]

I think we can agree that even marginally, you are more likely to make investments with capital which is backed by elsewhere to procure staff/stock etc in these trying times. That's where the economic benefit of these loans really shine.

re: HMRC, if payments are made to ALL trade creditors I don't see any issue with falling foul of any of the restrictions.

 

[Mr D]

@Mr D I don't buy "me not having to take money out of business by other means" as an economic benefit. The company can either afford to pay you dividends or it cannot. I guess if it has a big director's loan, it cannot... And a BBLS doesn't add to the pot you can take dividends out of...

Wasn't thinking about dividends. More than one way someone can receive money from a company, commonly for directors its by way of wages.

Was talking about the common thing when a business goes under, the director has taken money to be able to live... what with mortgage / rent / food/ kids etc.
Rather than what is ideal, instead what actually happens.

 

[jimbof]

I think we can agree that even marginally, you are more likely to make investments with capital which is backed by elsewhere to procure staff/stock etc in these trying times. That's where the economic benefit of these loans really shine.

re: HMRC, if payments are made to ALL trade creditors I don't see any issue with falling foul of any of the restrictions.

So the argument is a psychological one; that having loaned the money into the business as a director's loan you as a director would be disinclined to actually spend it on the business (!) but that if the money is on someone else's risk you'd be more likely to spend it on something that might benefit the business? This kind of implies the director's loan funds are sat there doing nothing (in which case, they could have been taken out anyway) - and not actually spent already!

I'm not sure I'd like to try and make that argument myself, but luckily I'm not going to need to.

Say the company is using a 50K facility from a director as day to day working capital, and it gets a BBLS for 50K and pays back that facility, it's hard to see where that benefit comes from. The company is in the same place, still living hand to mouth, but it is taxpayer's and not director's money at risk. There is no extra money for investment to grow out of the current situation. It's just a transfer of the risk.

If the DL is left in the business then there is extra capital in the form of the loan to effect some economic benefit, drive some growth, etc.

I'd love to understand a scenario where the paying back of the DL is a lever that improves the economic position of the business.

 

[jimbof]

Wasn't thinking about dividends. More than one way someone can receive money from a company, commonly for directors its by way of wages.

Was talking about the common thing when a business goes under, the director has taken money to be able to live... what with mortgage / rent / food/ kids etc.
Rather than what is ideal, instead what actually happens.

I think this has been covered elsewhere though. You also wouldn't be allowed to take a BBLS and pay it out to you in the form of salary increase. (well, you could do it now, the cash is in your company account and you do what you think you need to, but it doesn't mean it wouldn't be a problem later).

But surely, paying it as wages (over however long that took based on whatever salary level you'd set previously) is better for the business than paying back a loan... the wages are offset against income, whereas paying back the loan is a zero sum game.

 

[Mr D]

I think this has been covered elsewhere though. You also wouldn't be allowed to take a BBLS and pay it out to you in the form of salary increase. (well, you could do it now, the cash is in your company account and you do what you think you need to, but it doesn't mean it wouldn't be a problem later).

But surely, paying it as wages (over however long that took based on whatever salary level you'd set previously) is better for the business than paying back a loan... the wages are offset against income, whereas paying back the loan is a zero sum game.

Pretty much anything can be a problem later. Depending if the company ever gets investigated.
If it doesn't then no one else knows of the 'problem', if indeed it even is a problem.

The question of wages versus DL being taken out is one of risk. You and I may decide to accept that risk, someone else may decide not to accept that risk. Is one decision better for the individual than another? That's impossible for us to say on a forum.

 

[jimbof]

Pretty much anything can be a problem later. Depending if the company ever gets investigated.
If it doesn't then no one else knows of the 'problem', if indeed it even is a problem.

The question of wages versus DL being taken out is one of risk. You and I may decide to accept that risk, someone else may decide not to accept that risk. Is one decision better for the individual than another? That's impossible for us to say on a forum.

But I guess if your asking the question as the OP was, you clearly already know that you could take the cash and pay it for whatever purpose you think you could - I mean no-one is supervising what you do with your money on a transaction by transaction basis - we've not yet descended into full-on police state yet (though it may be coming - Bournemouth it appears may be the first to fall!)

The OPs question can't have been on the point of can they actually make the payment, but on the subtleties of whether it is "right" to, and whether they may have their feet in the fire later.

Probably without knowing a lot more about the current state of their business than they might be willing to disclose on public forum it's not possible to really give a very considered opinion, but I've not seen anything to say this is definitely OK.

As another poster commented, if the co already has a directors loan, and has taken advantage of BBLS (so meeting the test of impacted by Coronavirus) it seems it might not be on a rock solid foundation, and in such situations there can be comebacks to directors.

Attitude for risk clearly comes into it. I don't have much appetite myself.

 

[Mr D]

But I guess if your asking the question as the OP was, you clearly already know that you could take the cash and pay it for whatever purpose you think you could - I mean no-one is supervising what you do with your money on a transaction by transaction basis - we've not yet descended into full-on police state yet (though it may be coming - Bournemouth it appears may be the first to fall!)

The OPs question can't have been on the point of can they actually make the payment, but on the subtleties of whether it is "right" to, and whether they may have their feet in the fire later.

Probably without knowing a lot more about the current state of their business than they might be willing to disclose on public forum it's not possible to really give a very considered opinion, but I've not seen anything to say this is definitely OK.

As another poster commented, if the co already has a directors loan, and has taken advantage of BBLS (so meeting the test of impacted by Coronavirus) it seems it might not be on a rock solid foundation, and in such situations there can be comebacks to directors.

Attitude for risk clearly comes into it. I don't have much appetite myself.

Just because a business qualifies for the loan and gets it does not mean the business is going under. How they are placed to engage with customers, who their customers are, demand for the products and services etc.

Lockdown affected a massive percentage of businesses. Some will recover, some will do very well out of it.

Saw on the news a company called Games Workshop, based in Nottingham, has done so well its giving back the help it had from government. Besides getting tens of thousands in free advertising presumably the company has boomed.
And with no help from PETA over fur this time either.



Businesses may well boom the rest of the year if selling the right goods or services.

 

[jimbof]

Just because a business qualifies for the loan and gets it does not mean the business is going under. How they are placed to engage with customers, who their customers are, demand for the products and services etc.

Lockdown affected a massive percentage of businesses. Some will recover, some will do very well out of it.

Saw on the news a company called Games Workshop, based in Nottingham, has done so well its giving back the help it had from government. Besides getting tens of thousands in free advertising presumably the company has boomed.
And with no help from PETA over fur this time either.



Businesses may well boom the rest of the year if selling the right goods or services.

Do you know they had a director's loan in place they're paying off with their CBILs or BBLS? If not, hard to see the relevance.

 

[Mr D]

Do you know they had a director's loan in place they're paying off with their CBILs or BBLS? If not, hard to see the relevance.

That to me says they want to change the risk. Says nothing about the viability or the potential of the business to make money over time.

 

[Red Wood]

Just because a business qualifies for the loan and gets it does not mean the business is going under. How they are placed to engage with customers, who their customers are, demand for the products and services etc.

This, 100%. I'd argue majority of businesses see this also as an opportunity too good to turn down. The terms are as good as they are ever going to get.

Our company is in the industrial sector, we supply physical goods in scale so funding will always be part of the biz. Maybe we should of started a completely different business with huge profit margins, but we didnt...

 

[jimbof]

That to me says they want to change the risk. Says nothing about the viability or the potential of the business to make money over time.

... and if that is the reason, it would be against the terms of the BBL. The BBL is to benefit the biz, not the director.

From other threads the OP says they invested their own money in biz via director's loan (shop fittings etc), and now they have a BBL they want to replace that with the BBL. It is hard to see the economic benefit to business there. Just benefit to them as individuals in de-risking their own money.

Edit: Another link on the subject, again from someone trying to sell insolvency advice, but I'm sure the principles explained hold water.
https://www.lancashirebusinessview....back-loans-and-the-risk-of-personal-liability

 

[Red Wood]

Insolvency practitioner, about as much use as a chocolate teapot.

we've had plenty of bad debt over the years, they get their cut and quickly tell all creditors even those with charges on assets, "sorry, nothing left"

directors start up a new company the next day. This isn't a hypothetical scenario, personally witnessed it many times I'm affraid to say.

 

[Mr D]

Insolvency practitioner, about as much use as a chocolate teapot.

we've had plenty of bad debt over the years, they get their cut and quickly tell all creditors even those with charges on assets, "sorry, nothing left"

directors start up a new company the next day. This isn't a hypothetical scenario, personally witnessed it many times I'm affraid to say.

Witnessed it?
Have done it.

Not using IP, used spongebob method instead. Much cheaper. The creditors still had nothing.

Some creditors were pretty nasty about recovering their money - in one case all £3 odd of it.

My current limited company used the stock the old company had that was assigned to me by its owner.

 

[Red Wood]

I'm assuming this happened after all avenues have been exhausted. We have had experience with the dregs of the business community who knowingly traded into the ground for personal gain

 

[Mr D]

I'm assuming this happened after all avenues have been exhausted. We have had experience with the dregs of the business community who knowingly traded into the ground for personal gain

By all avenues you mean insolvency had been confirmed yes.
Not a lot of options when you have little cash and have just lost your jobs. A common problem faced by business owners whose business becomes insolvent.

 

[Red Wood]

My point being you stopped trading once you knew insolvency was or was about to happen, rather than continue to procure products or services using trade credit with the aim of transfering them, which is far too common now days.

 

[Mr D]

My point being you stopped trading once you knew insolvency was or was about to happen, rather than continue to procure products or services using trade credit with the aim of transfering them, which is far too common now days.

And such directors who do continue and procure should be investigated. Except the small creditors appear reluctant to spend the money winding up the company.
And the directors themselves are hardly going to drop themselves in it if they can help it so they will not want a formal insolvency.

You and I cannot make things right. All we can do is carry on.

 

[Geoff rouse]

Can a bounce back loan be used to repay yourself money you lent to the company?

so, a directors loan TO the company?

thanks

The legislation states that the business can use the loan to refinance other debts. If the company owes money elsewhere, the business can pay these off with the bbl. Therefore repaying a DL to the company is a debt and legitimately being repaid by the bbl. As long as you have essentially put the money into the company, the company is not just giving you money, its repaying the DL.. and these are not excluded from the legislation.. any loan can be repaid by the company with a bbl.

 

[jimbof]

The legislation states that the business can use the loan to refinance other debts. If the company owes money elsewhere, the business can pay these off with the bbl. Therefore repaying a DL to the company is a debt and legitimately being repaid by the bbl. As long as you have essentially put the money into the company, the company is not just giving you money, its repaying the DL.. and these are not excluded from the legislation.. any loan can be repaid by the company with a bbl.

This is half the story though. If there are other debts than the DL, and the business subsequntly folds, questions can be raised about the potential for the to have been misfeasance in making preference payments to the DL ahead of other debts. Same can also apply if a BBL is used to only clear loans which have a personal guarantee element.

 

[UK Contractor Accountant]

I think you will find IP's are going to be all over this when company's fail with a BBL which has been used to repay DL money in the period leading to up to Insolvency.

Expect to see Prosecuting Solicitors engaged to try and reclaim the preferred money repaid to the Director.

 

[Red Wood]

Expect to see Prosecuting Solicitors engaged to try and reclaim the preferred money repaid to the Director.

Said directors will be protected by the sheer volume of these cases. Safety in numbers.

 

[jimbof]

Said directors will be protected by the sheer volume of these cases. Safety in numbers.

I guess it probably depends on when they fold. If you folded at the moment there's no indication it's going to be treated any different to any other insolvency. Who knows what it will look like 6 months to a year down the line though.

There would surely have to be some sort of change in the rules for IPs to say - that's just a BBL, we ignore those because there's lots of them, or a change in behaviour of the banks not to pursue insolvency?

If the fraud rates really are as high as claimed though it would equally seem like a low hanging fruit to pursue cases. £50K a pop, from folk who may well have realisable assets they've pumped the money into, and could be examples of what the state will do to you if you take the mick...

It's heartening to see some arrests of scallywags who've been doing this on an industrial scale:
https://www.lbc.co.uk/news/four-arrested-alleged-covid-bounce-back-loan-fraud/

 

[Red Wood]

I've heard many stories of people taking the p*ss with BBLs. I know Somone who owns a small hobby business, decided to buy a brand new golf GTI with the loan.
I also heard someone boasting on our Ind estate that they managed to get multiple BBL..
The frustrating thing is, I think getting caught will be the exception rather than the rule.

 

[UK Contractor Accountant]

I don't think Insolvency laws will be changed - the IP's will pursue preference cases in accordance with their duties and the law.

As already stated if the BBL's are repaid who cares what they were used for.

 

[jimbof]

As already stated if the BBL's are repaid who cares what they were used for.

Arguably as a tax payer you should care a bit as you've subsidised someone getting a cheap loan, but agree, in the scale of things, if the intent was just to use it as cheap finance, and it does get paid back, it's a relatively minor infraction... (I'm sure the banks wouldn't see it that way though if they've missed out on perhaps double or triple the amount of interest on a £50K loan)

 

[UK Contractor Accountant]

Arguably as a tax payer you should care a bit as you've subsidised someone getting a cheap loan,

have got some back anyway on the vat paid on luxury goods for the Directors as mentioned by @Red Wood