Will Bounce Back Loans Be Written Off? Understanding Your Legal Options for Business Loan Write-Offs

If you’re a UK business owner who took out a Bounce Back Loan (“BBL”) during the pandemic, you’re not alone in asking: will bounce back loans be written off, or are you still on the hook for the debt? As economic recovery continues to pose challenges for many small businesses, understanding if and how a bounce back loan write off is possible is a pressing concern.

In this guide, we’ll break down your legal options around bounce back loan write off, what government policy says about waiving or writing off these loans, the practical steps if your business is struggling, and how to protect yourself as a director. If you want clarity on how to approach bounce back loan debt in 2024 - and what to do next - keep reading.

What Are Bounce Back Loans - And Why Are Write-Offs a Hot Topic?

Let’s start with the basics. Bounce Back Loans were introduced by the UK government in May 2020 to help small and medium-sized enterprises (“SMEs”) weather the COVID-19 storm. They offered loans of up to £50,000, with an initial 12-month interest-free period and government-backed guarantees for lenders.

However, as repayments have kicked in, many businesses are struggling to pay them back. The government estimate is that up to 40% of bounce back loans may never be fully repaid. So, naturally, business owners are asking whether bounce back loans will be written off, or if there are legal ways to write them off if your company can’t pay.

Can I Write Off My Bounce Back Loan?

This is the most common question we get from worried business owners. The simple answer is: bounce back loans are not designed to be written off automatically. But, in certain circumstances - such as insolvency - some debt may be wiped out. Here’s what you need to know:

• Bounce Back Loans are limited company debts. If taken out in your company’s name (as most were), the debt belongs to the company, not to you personally.
• Government guarantees do not mean the loan is “free money.” The guarantee is for the bank’s benefit, not yours. The lender must chase the company first before making a claim on the guarantee.
• Loan write-off only typically occurs if a company is formally insolvent (e.g., liquidation). If your company closes down following insolvency procedures, unpaid bounce back loans may ultimately be written off and covered by the government guarantee.
• For sole traders or partnerships, the rules are different. If you took a BBL as a sole trader, you are personally liable. The debt can only be written off through bankruptcy or formal debt relief methods.

So, while hoping your loan will be written off automatically isn’t realistic, you may be able to minimise your liability - especially through proper legal steps if your business is facing closure.

What Have the Government and Banks Said About Bounce Back Loan Write Offs?

There’s often confusion about what the government has promised regarding bounce back loan write offs. Here’s a summary of the official line (as of June 2024):

• No ‘blanket’ write-off scheme: The government has confirmed that it will not introduce a mass BBL write-off or forgiveness scheme for businesses that are simply struggling to pay.
• The Pay As You Grow (PAYG) Scheme: Businesses can extend BBL repayment terms to up to 10 years, take payment holidays, or pay interest-only for 6 months. But this is about flexibility - not writing off debt.
• Write-off through insolvency: If a company is formally liquidated, and assets can’t cover the BBL, the remaining debt is written off. The lender then claims their money back from the government guarantee, but the business ceases to exist.

The upshot? At present, the only route for a bounce back loan write off is through formal insolvency or bankruptcy, not government amnesty. If you’re worried about business debt, understanding the insolvency process is crucial.

What Happens to a Bounce Back Loan If My Company Fails?

Let’s walk through the process step-by-step for a limited company (Ltd):

1. Financial Trouble: Your business can’t keep up with loan repayments or other debts.
2. Formal Insolvency Process: You enter liquidation (voluntary or compulsory), administration, or a Company Voluntary Arrangement (CVA).
3. Asset Sale: The insolvency practitioner sells company assets to pay creditors.
4. Loan Write-Off: If debts (including the bounce back loan) can’t be fully covered, unpaid sums are written off. The lender claims the balance under the government guarantee.
5. Personal Liability Warning: If you followed the law and used the BBL properly, you should have no personal liability. But if there’s evidence of fraud, misuse of the loan, or wrongful trading, directors can be personally pursued. Director’s duties remain critical to understand.

For more on the details of insolvency, check out our guide to company liquidation. If you’re thinking of closing your business, here’s a step-by-step breakdown of the main options.

Can I Just Stop Paying or Ignore My Bounce Back Loan?

Stopping payments (without a formal insolvency process) is not advised. Here’s why:

• Your lender can pursue your company for the outstanding BBL - and potentially wind it up if the debt is not paid.
• Ignoring the debt may lead to mounting interest, damaged company credit, and ultimately formal recovery proceedings, making things worse in the long run.
• If you dissolve your company informally (e.g., “strike off”) but leave an unpaid BBL, the bank may object, and the company could be restored for the lender to chase the debt.
• Informal write-off is not possible - the lender will expect proper insolvency steps if your company can’t pay.

Best advice: if your business is unable to meet its obligations, it’s important to seek professional advice on insolvency and your options for a legal bounce back loan write off, rather than simply walking away.

Will Bounce Back Loans Be Written Off for Everyone?

Unfortunately, there is no plan for a widespread amnesty on bounce back loans. The government’s focus is on helping viable businesses restructure or manage cash flow through the PAYG scheme - not on forgiving debt for all.

However, the following situations may lead to a bounce back loan being written off:

• Your limited company enters formal insolvency and has no assets to repay the BBL.
• You are a sole trader and are declared bankrupt, in which case most (but not all) debts may be written off.
• A debt relief or IVA (Individual Voluntary Arrangement) is agreed for personal debts, if relevant.

But be careful: if you misused the BBL (e.g., drew the funds out for personal use, used a ‘phoenix’ company to avoid paying, or gave misleading information on the application), the bank or the Insolvency Service could pursue directors personally for repayment, or even seek criminal penalties. Director duties and liability rules are very strict in this area.

Are There Legal Ways to Minimise Bounce Back Loan Debt?

If you’re worried about affording repayments, here are practical first steps to manage your situation and explore legal routes to reduce (or write off) BBL debt:

1. Contact Your Lender Early: Explain your situation. Ask about PAYG options - such as lengthening the loan term or taking a repayment holiday.
2. Review Your Company’s Finances: If insolvency seems likely, speak to an insolvency practitioner. They’ll talk you through how entering a CVA, administration, or liquidation works, and whether your BBL would be written off as part of the process.
3. Check for Personal Liability Risks: Did you use the loan funds according to the rules? If yes, your exposure as a director is limited. If not, you may need to prepare a defence or seek legal help to minimise personal risk.
4. Get Professional Legal Advice: Discuss your individual case with a legal adviser. They can help you check for director risks, review your company’s solvency, and handle formal closure procedures, protecting you throughout.

For more on protecting yourself as a director, see our guide on avoiding disqualification and compliance tips for company directors.

Can I Strike Off My Company With a Bounce Back Loan?

This is a common temptation, but tread carefully. The official rules require all company debts to be settled before applying for a voluntary “strike-off” at Companies House. If you attempt to close your company via strike-off without paying the BBL:

• The lender will likely object to the strike-off.
• The company could be restored to the register for the lender to chase debts.
• You could get into deeper trouble if creditors or HMRC challenge the closure.

So, if your company can’t pay back its bounce back loan, you will need to use the proper insolvency process. Informal write-offs or shortcuts generally do not work - and may increase your personal risk.

What Are the Risks of Trying to Write Off a Bounce Back Loan Illegally?

Attempting to “dodge” a BBL liability without following proper insolvency steps - or misusing the loan in the first place - can cause serious consequences. These include:

• Being pursued personally as a director for the unpaid debt.
• Potential disqualification from acting as a company director.
• Action by The Insolvency Service or HMRC for fraud or wrongful trading.
• Creditors (including your bank) applying to restore your company or reverse a strike-off.

The bottom line: always follow the legal steps for company closure and debt write-off. If in doubt, speak with a legal expert first.

How Do I Protect Myself As a Director If the Business Can’t Repay?

If you’re a company director, proper behaviour and clear records are your best protection. Here’s a checklist to minimise risk if you’re facing insolvency:

• Document all board decisions around company finances and loan use.
• Show you acted honestly and in the best interests of creditors if your company was in trouble.
• Don’t pay yourself or related parties preferentially at the expense of creditors.
• Don’t try to transfer assets out of the company to avoid debts (that’s a red flag for wrongful trading).
• Get specialist advice early - the sooner you act, the more options you’ll have, and the less likely you are to face personal liability.

If you’re unsure, our director obligations guide can help you get up to speed on your responsibilities.

Are There Alternatives to Insolvency That Can Help With Bounce Back Loan Repayment?

Absolutely. If your business remains viable but cash flow is tight, options to ease pressure without writing off the loan include:

• PAYG Flexibility: Take a repayment holiday, extend the loan term, or pay interest-only for up to 6 months. Contact your lender ASAP to access these options.
• Company Voluntary Arrangement (CVA): An insolvency practitioner can help your company reach an agreement to repay debts over time, possibly writing off a portion.
• Time-to-Pay Arrangements with HMRC and other creditors: Often useful to free up cash for BBL repayments.
• Refinancing or business restructuring: If you have good prospects but temporary cash flow issues, restructuring your finances or business model may help keep you solvent.

It’s crucial to get independent legal advice as you consider which path is best for your particular business. Proactive action can avoid the more drastic outcome of company liquidation - and help you maintain control.

Key Takeaways

• Bounce back loans are not written off automatically - only as part of a formal insolvency process or, for sole traders, through bankruptcy/debt relief.
• There is no UK government ‘blanket’ scheme to write off bounce back loans for struggling businesses in 2024.
• For limited companies, unpaid BBLs will generally only be “written off” if the business is wound up by an insolvency professional and assets are insufficient to pay debts.
• Directors remain at risk if BBL funds were misused or if laws were breached during insolvency. Always follow director duties and keep good records.
• Alternative repayment options (PAYG, CVA, restructuring) are available for viable businesses. Take action early.
• Always seek professional legal and insolvency advice about the best path for your business before stopping payments or considering a bounce back loan write off.

If you’d like clear, practical advice about bounce back loan write off options and how to protect yourself and your business, our team is here to help. You can reach Sprintlaw UK at 08081347754 or team@sprintlaw.co.uk for a free, no-obligation chat about your situation.