Small businesses face the heat as thousands unable to pay back Bounce Back Loans

Amid the COVID-19 pandemic, the Bounce Back Loan program emerged as a crucial financial support for small businesses, providing a lifeline during unprecedented times. However, as the situation has evolved, a key question arises: Has this government-backed loan initiative, which initially helped struggling businesses, unintentionally caused financial trouble in the long run?

With 1.5 million Bounce Back Loans given to small businesses during the pandemic, the story is a mix of financial relief and, for some, financial problems. More and more businesses have faced the threat of insolvency, with over 16,000 companies going out of business before they could repay the loans. This has led to a notable increase in business closures in the past year, often happening when it’s time to repay the loans. In this blog, we will break down the factors involved and the consequences of this critical situation, with insights from Google Trends providing a unique perspective on the timing and impact of this financial challenge.

You can see from Googe Trends that there was a peak in interest around Bounce Back Loan and exactly 12 months later when they were due to be paid back, there was a peak relating to liquidation.

Naturally, the long-term effects of the pandemic have been lasting for small businesses, particularly those who relied on the Bounce Back Loans for a short-term fix without the means to pay it back when things got moving again. Many companies have found themselves under fire as they struggle with limited labour, inflating costs and the pressure of these Bounce Back Loans repayments before they can even begin to see a profit. 

Part of the issue with this is that in the rush to mend the economy, checks on the borrowers in question were limited.  Under the scheme, any small business could apply for a loan of up to £50,000. This was meant to be dependent on turnover but as applicants were allowed to self-certify their figures, many simply received more money than they could ever afford to pay back.  £47 billion pounds worth of loans were handed out, all intended to be repaid within years but with hundreds of directors receiving loans they weren’t entitled to, not to mention the thousands of companies who simply couldn’t keep their heads above water, it’s no wonder that this bounce-back blunder could cost the taxpayer as much as £500million. 

Many companies in this position are going down the route of Creditors’ Voluntary Liquidation (CVL) but what can business owners do to help themselves avoid insolvency? 

 Our experience is that every year, start-ups and small businesses in the UK fail because they run out of cash. One of the main reasons for this is cash flow problems caused by slow-paying customers and bad debt. Unless you implement a clear credit control process, your business’s ability to grow will be under threat. We recommend our customers keep a clear credit control process by invoicing quickly and accurately, forecasting their cash flow and keeping it up to date.  For more information on improving your credit control process, check out our handy guide- 10 tips on improving your credit control process.

It’s important to note that the majority of businesses who have gone bust from the bounce-back loan scheme were legitimate borrowers who simply couldn’t make ends meet, however, there is also an increasing amount of evidence that bounce-back loans were misused.  These fraudulent claims are being investigated, but there are fears that at least 17 billion could be lost through these fraud cases, mistakes and insolvencies.  A far cry from the desired end result of a scheme intended to save the economy in its moment of crisis.