The Bounce Back Loan Scheme was introduced to help small and medium-sized businesses maintain cash flow during the height of the COVID-19 pandemic. For many, it offered quick access to business finance during an unpredictable and difficult period. But with repayment obligations now in full effect - and the loan scheme closed to new applications - some Bounce Back Loan borrowers may be struggling to pay back what they have borrowed, especially in the face of existing debt repayments, rising costs and reduced turnover.

If you are having difficulty meeting your repayment schedule, it is vital to get the right advice on your rights and responsibilities. In this blog post, the restructuring and insolvency solicitors at JMW explain what could happen if you can’t repay your Bounce Back Loan, what your options might be, and what support is available to help you manage your financial obligations. We’ll also address what happens in cases of loan misuse, and what protections are – and aren’t – in place under the terms of the loan scheme.

What Was the Bounce Back Loan Scheme?

The Bounce Back Loan Scheme was launched by the UK government in May 2020 to provide emergency business lending during the COVID-19 pandemic. The scheme offered loans of up to 25% of a business’s turnover, capped at a maximum loan of £50,000. It was open to small and medium-sized businesses that were trading as of March 1st 2020 and had been adversely affected by the pandemic.

One of the key features of the scheme was its simplicity and speed. Borrowers applied through accredited lenders and, once approved, received funds quickly - in many cases within days. The government provided a 100% guarantee to lenders for the outstanding balance, which meant that banks and financial institutions faced no risk if the loan was not repaid. However, this guarantee did not protect the borrower.

Bounce Back Loans were issued on a six-year loan term, with no repayments due for the first 12 months. During that period, the government also covered interest payments through a Business Interruption Payment. After the first year, borrowers began making monthly repayments at a fixed interest rate of 2.5%.

The scheme officially closed to new applications on March 31st 2021. Since then, many borrowers have transitioned into repayment, while others have accessed support through the Pay As You Grow initiative to help manage their payment obligations.

What Are Your Obligations to Repay a Bounce Back Loan?

When you took out a Bounce Back Loan, you agreed to repay the full loan amount, along with interest, according to the terms set out by your lender. While the government guaranteed the loan scheme to support business lending, that guarantee applies only to the lender - not to the business or its owners. The responsibility for making monthly repayments rests entirely with the borrower.

The initial 12-month capital repayment holiday meant that no payments were required during the first year. However, after this period, you became liable for both the capital repayment and the interest payments. The interest rate is fixed at 2.5% per annum - the same fixed interest rate for all borrowers - with no early repayment charges or early repayment fees if you choose to repay the loan early.

Most lenders require monthly payments via direct debit, and failure to make these payments as scheduled will typically trigger arrears notices and could negatively affect your credit rating. It’s also important to note that Bounce Back Loans do not carry the usual consumer protections you might expect with personal lending – for example, the Financial Ombudsman Service may have limited jurisdiction depending on the type and size of your business.

What Happens if You Don’t Repay a Bounce Back Loan?

Failing to repay a Bounce Back Loan can have serious consequences, but the outcome depends on the structure of your business - whether you're a sole trader, a company director, or part of a limited liability partnership (LLP).

Sole traders are personally liable for their debts. If you took out a Bounce Back Loan as a sole trader and cannot repay it, you may be pursued personally for the outstanding balance. Your personal assets - such as savings or property - could be at risk if formal debt recovery action is taken.

For limited companies and LLPs, the business itself is usually liable for repaying the loan. The Bounce Back Loan is not personally guaranteed by the directors or partners, and the lender cannot seek personal repayment unless there has been misconduct. However, if the company goes into liquidation or ceases trading with an outstanding Bounce Back Loan, insolvency practitioners may investigate how the loan was used. If they find that directors acted improperly - for example, by misusing funds, paying personal debts, or continuing to trade while insolvent - they could be held personally liable and may be subject to disqualification or other sanctions.

Some borrowers assume that the government’s 100% guarantee means their loan will be written off without consequence. In reality, the British Business Bank, which administered the scheme, guarantees repayment to the lender, not the borrower. If your loan defaults, the lender may first attempt to recover the debt from you or your business before claiming on the guarantee. This process can still affect your credit rating, restrict access to future lending applications, and damage your standing with credit reference agencies.

Lenders may also use commercial recovery methods, such as issuing court proceedings or appointing debt collection agencies. While the loan scheme did not permit lenders to require personal guarantees, standard recovery routes still apply.

Can a Bounce Back Loan Be Written Off?

In most cases, the only scenario where a Bounce Back Loan might be written off is through formal insolvency. If your company enters liquidation or administration and there are no remaining assets to repay creditors, the loan may be written off as part of the insolvency process. However, insolvency does not guarantee protection from all consequences. Directors may still face investigation into how the loan was used and, if funds were misapplied or withdrawn improperly, they may be held personally accountable.

For sole traders, there is no legal separation between personal and business finances. If you become personally bankrupt, the outstanding Bounce Back Loan will be included in your bankruptcy estate and may be written off following standard bankruptcy procedures.

It’s worth noting that lenders are not permitted to impose early repayment charges or early repayment fees, and they cannot demand early repayment without cause. If you're in financial difficulty, it is always better to discuss repayment options rather than default. Borrowers who ignore the problem may lose access to business banking, damage their credit rating, and face difficulties when trying to obtain finance in the future.

What Are My Options for Repaying a Bounce Back Loan?

If you're struggling to keep up with your Bounce Back Loan repayments, there are several support options designed to help you manage your payment obligations without defaulting.

The most widely used is the Pay As You Grow scheme. This package of flexible repayment options was introduced by the government to help Bounce Back Loan borrowers adjust their repayment schedule based on their circumstances. Options available under Pay As You Grow include:

• Interest-only payments for six months: This reduces the size of your monthly repayments by covering only the interest, with no capital repayment due during the period. This option for paying interest only can be exercised up to three times during the term of the Bounce Back Loan.
• A six-month repayment holiday: You can pause all repayments, including interest payments, for six months. This option can only be used once during the term of the loan, but will be available even if you have already used a previous capital repayment holiday.
• Extending the loan term: You can request to extend your loan term from six to ten years at the same interest rate. This spreads the cost over a longer period and reduces your monthly payments - although you may pay more interest overall.

These options are designed to make the loan more manageable without affecting your credit file, as long as they are agreed in advance with your lender. If you continue to miss payments without engaging with the lender, the situation may escalate and result in default interest, legal recovery action, or a referral to credit reference agencies.

In some circumstances, formal debt solutions such as an Individual Voluntary Arrangement (IVA) for sole traders or a Company Voluntary Arrangement (CVA) for limited companies may offer a way forward. These legally binding agreements allow you to repay a portion of your outstanding balance over time, while freezing further interest and halting enforcement action. IVAs and CVAs must be arranged through a licensed insolvency practitioner and are often used when a business is no longer able to meet its full monthly payments, but wishes to avoid full insolvency or bankruptcy. While these options can affect your ability to access future lending applications, they may preserve the business in the short to medium term.

What Happens to Those Who Misused Their Bounce Back Loan?

The Bounce Back Loan Scheme was designed to support trading costs, not personal spending or unrelated financial activity. Misusing a Bounce Back Loan - whether by using the funds for personal purchases, transferring them to a personal account, or supporting a business that was not eligible - can carry serious consequences.

Although the scheme did not require detailed checks at the application stage, misuse of funds can be uncovered during insolvency, audits, or compliance investigations by lenders and regulatory bodies. Where misuse is identified, company directors may be subject to director disqualification, personal liability for the outstanding balance, or even criminal investigation in cases of fraud.

If your business enters insolvency and a licensed insolvency practitioner suspects misuse, they are required to report this to the Insolvency Service. In cases involving deliberate misrepresentation or abuse of the loan scheme, recovery action may include applying for compensation orders or referring the case for prosecution. Even if the person who took out the loan didn't misuse it to a criminal extent, misuse could still lead to restrictions on future business lending, reputational damage, and difficulty accessing mainstream business banking services.

Find Out More

If you’re concerned about how a Bounce Back Loan has been used - or you're facing action due to non-payment - it's important to act quickly and get the right legal support. At JMW, we are able to help business owners work through complex issues linked to the Bounce Back Loan Scheme, including allegations of misuse and director disqualification proceedings.

Take a look at our case study below, in which we supported a client who had been threatened with disqualification proceedings for allegedly using their Bounce Back Loan for non-permitted purposes: