Alex is Sprintlaw's co-founder and principal lawyer. Alex previously worked at a top-tier firm as a lawyer specialising in technology and media contracts, and founded a digital agency which he sold in 2015.
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If your business took out a Bounce Back Loan (BBL) during COVID-19, you’re not alone in wondering how repayment works now that trading conditions have shifted.
Don’t stress - there are clear options to manage Bounce Back Loans repayment sensibly, and there are also some legal traps you’ll want to avoid. In this guide, we’ll walk through the rules, flexible repayment routes, what happens if you can’t pay, and when directors could face personal risk under UK law.
By the end, you’ll know the levers you can pull and the steps to protect your business as it recovers.
What Was The Bounce Back Loan Scheme And Why Repayment Matters?
The Bounce Back Loan Scheme (BBLS) was introduced in 2020 as an emergency measure to help small businesses access fast, low-cost finance. Loans were capped at 25% of turnover (up to £50,000), carried a fixed 2.5% interest rate, and came with a government guarantee to the lender (not to you as the borrower).
Key points to remember:
- Government guarantee does not erase your company’s liability - it simply protects the lender if they can’t recover from your business.
- No personal guarantees were permitted under BBLS for standard loans, so directors are generally not personally liable unless there’s fraud or other misconduct.
- Your business is still on the hook to repay the loan under the agreed terms, and default can lead to collection action, damaged credit, and insolvency steps if not handled early.
If you’re worried about whether these loans can ever be written off, the short answer is that write-offs are limited and situation-specific. For a deeper look at scenarios where a write-off might be possible (for example, through insolvency processes), see our guide on bounce back loans being written off.
How Do Bounce Back Loans Repayment Terms Work?
Most BBLs started with a 12-month interest-free period (interest paid by the government), followed by capital and interest repayments. The fixed interest rate is 2.5% per annum. The standard initial term was six years, but you can extend and flex repayments under the “Pay As You Grow” (PAYG) options.
Pay As You Grow (PAYG) Options
PAYG was designed to help businesses smooth cash flow as they recovered. Through your lender, you can typically:
- Extend the loan term from 6 years up to 10 years.
- Make interest-only payments for 6 months (you can usually do this up to three times during the loan term).
- Take a 6-month payment holiday (usually available once during the loan term).
Each lender’s process can vary slightly, but they must make PAYG available for BBLs. If cash flow is tight, it’s worth engaging your lender early and requesting the PAYG option that best aligns with your forecasts.
What If You’ve Already Restructured Your Business?
Some owners shifted to smaller operations, paused trading or pivoted entirely. PAYG can still help - even if your revenue looks different today. If you’re intentionally pausing activity, make sure you understand the compliance steps involved in making a company dormant so you don’t accidentally trip reporting or tax obligations while you manage debt.
Struggling With Repayments? Practical Options Under UK Law
If you can’t meet the scheduled BBL repayments, you’re not out of moves. The best outcomes usually come from acting early and documenting a plan. Consider these routes:
1) Engage Your Lender Proactively
Contact your lender before you miss payments. Explain your position, cash flow and steps you’re taking. In many cases, lenders will implement PAYG or discuss other forbearance options. Where a negotiated workout is appropriate, terms can be recorded in a Deed of Settlement to make variations crystal clear and enforceable.
2) Reduce Costs And Stabilise Cash Flow
It sounds obvious, but a quick cash flow triage often buys you time to rehabilitate repayments:
- Pause non-essential spending and renegotiate supplier terms.
- Switch to PAYG and align repayments with your actual revenue cycle.
- Avoid drawing excessive sums from the business - be mindful of director loan accounts and distributions while the company is under pressure.
If you’ve taken funds out in a way that creates or increases a director loan account, be aware that overdrawn balances can cause issues, especially if insolvency is on the horizon. Our guide to shareholder and director loans explains the key risks.
3) Formal Repayment Plans Or Insolvency Options
If the company is insolvent or likely to become insolvent (i.e., unable to pay debts as they fall due), you have duties to creditors and should take advice urgently. Potential routes include:
- Time-to-pay instalment arrangements with creditors (outside formal insolvency).
- Company Voluntary Arrangement (CVA) to agree a formal compromise with creditors.
- Administration, if rescue is viable, or liquidation if the business cannot be saved.
Under the Insolvency Act 1986, directors must avoid wrongful trading and other conduct that worsens creditor losses. Getting advice early can preserve options and reduce personal risk.
4) If You’re Closing Your Business
If you decide to wind things down, keep on top of company records, payroll files, tax returns and creditor communications. Good record-keeping is essential - not just for legal compliance, but to evidence that you’ve managed director duties properly. This short guide to recordkeeping after closing a business covers what to keep and for how long.
5) Managing Employees During A Downturn Or Closure
If your team is affected by reduced trading or closure, ensure you follow employment law, including notice, redundancy consultation and payments where applicable. Our overview of employee rights when a company closes outlines the key obligations to plan for alongside debt decisions.
When Can Directors Become Personally Liable?
Most BBLs did not allow personal guarantees. So, in the normal course, your company is liable for repayment, not you personally. However, directors can face personal exposure in certain circumstances under UK law. Common risk areas include:
Fraud Or Misuse Of Funds
If a BBL was obtained via false statements, or funds were used improperly (e.g., for personal rather than genuine business purposes), personal claims may arise. Authorities may also consider director disqualification under the Company Directors Disqualification Act 1986. The Fraud Act 2006 can also be engaged in serious cases.
Wrongful Trading And Misfeasance
Under the Insolvency Act 1986, if directors continue trading when they knew (or ought to have known) there was no reasonable prospect of avoiding insolvent liquidation, a court can order personal contributions to the company’s assets. Misfeasance claims can arise where directors breach their duties or misapply company property.
Unlawful Dividends Or Overdrawn Director Loan Accounts
Paying dividends without sufficient distributable profits can create repayment obligations. Similarly, an overdrawn director loan account may be recoverable by a liquidator. Keeping clear board decisions and separating the director role from day-to-day employment responsibilities helps - see our explainer on director vs employee roles for practical pointers.
Preferences And Transactions At Undervalue
If, before insolvency, the company prefers one creditor over others (or transfers assets for less than their worth), a liquidator can challenge those transactions. This is especially relevant if you’re juggling multiple debts - get advice before making large one-off payments or moving assets.
Bottom line: if the business remains viable, use PAYG and negotiations to stabilise repayments. If it’s not viable, act promptly so you meet your duties and minimise personal risk.
Can Bounce Back Loans Be Written Off?
Outside insolvency, lenders generally expect repayment (with PAYG flexibility). The government’s guarantee is to the lender, not to your business - so it doesn’t automatically write off the loan for you.
Potential write-off scenarios include:
- Formal insolvency processes (e.g., CVA, liquidation), where unsecured debts may be compromised or not fully repaid.
- Settlements agreed with the lender as part of restructuring, typically documented in a Deed of Settlement.
- Exception cases involving lender error or unenforceability (rare and very fact-specific).
If you’re exploring a write-off or partial settlement, make sure you consider tax consequences and director duties. Our detailed explainer on loan write-offs runs through the realistic options and risks.
Legal Documents And Next Steps To Protect Your Business
Good paperwork won’t fix cash flow on its own - but it will protect your position and make negotiations smoother. As you manage Bounce Back Loans repayment, line up the following:
Board Resolutions And Records
Document key decisions (e.g., opting into PAYG, approving a settlement proposal, appointing an insolvency practitioner). Properly kept minutes and resolutions help demonstrate that you’ve considered creditor interests at the right time.
Cash Flow Forecast And Repayment Plan
Prepare a 6–12 month rolling forecast showing the impact of PAYG options, seasonal revenue, and essential costs. Lenders are more likely to collaborate when you present a realistic plan.
Settlement Or Variation Agreement
If you agree alternative payment terms with the lender, ensure they’re accurately captured in a binding Deed of Settlement. Avoid informal email agreements-clarity now avoids disputes later.
Director Loan Account Reconciliation
Check whether any drawings have created a debit balance. If so, plan how it will be cleared to reduce risk in a downturn. Our summary of director loans sets out the guardrails.
If You’re Pausing Or Suspending Trade
Make sure all Companies House and HMRC obligations are still met on time while the business is dormant. This guide to putting a company into dormancy explains what filings and statements still apply.
If You’re Closing Down
Alongside creditor discussions and employee steps, maintain a clean audit trail. Keep records in line with the recordkeeping rules after closing a business - this reduces stress if questions arise later.
Key Takeaways
- BBLs carry a fixed 2.5% rate and standard six-year term, but you can use Pay As You Grow to extend to ten years, switch to interest-only periods, or take a payment holiday.
- Engage your lender early if repayments are tight - proactive communication and a realistic plan can unlock flexibility and avoid default.
- Directors are usually not personally liable for BBLs, but personal risk can arise from fraud, wrongful trading, misfeasance, unlawful dividends, or overdrawn director loans.
- If the company is insolvent or likely to become insolvent, get advice quickly. Options include CVA, administration or liquidation - delays can increase risk.
- Write-offs are limited and typically occur through formal insolvency or negotiated settlements documented in a Deed of Settlement.
- Keep strong governance records, reconcile any director loan accounts and, if pausing or closing, follow dormancy and recordkeeping rules to stay compliant.
If you’d like tailored advice on Bounce Back Loans repayment, settlements or director risk, our lawyers can help you map the right path for your business. You can reach us on 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.
