Do You Have to Pay Back the Bounce Back Loan


The pandemic of covid had long-lasting effects on people’s lives. The most affected were the middle and lower class. Small and medium-scale businesses suffered a huge setback during the lockdown. To help these vulnerable businesses sustain, the government offered them financial help by granting bounce-back loans. These proved great support, and they were able to manage through the tough times. However, if you are one of the seekers, the question of do you have to pay back the bounce-back loan must be following you. Here is what the bounce-back loan really is and if it can be waived off. 

What is bounce back loan

Bounceback loan was an initiative by the government during the pandemic of covid. The scheme aimed to help small and medium-sized businesses to borrow 25% of their company’s turnover up to the limit of 50,000 pounds. The government guarantees a complete percentage of the loan, and there would be no payment or interest for an entire year from the day the loan is taken. The rate of interest is a minimal 2.5% per annum after 12 months.

In what case will the loan be written off

According to the National Audit Office, the government has issued a 45 billion pound loan during the outspread of the coronavirus, and the 26 billion pound loan will never be paid off. In order to be in the latter ones, you must have spent the amount on the business only. While granting the loan, the businessmen were asked a few questions that will now determine how much they have to pay back. The application stated that your business must be financially strong before the effects of the pandemic hit. You could only apply for 25% of your annual turnover as the principal amount, and it must only be used for business purposes only. Your debt will likely be waived if you have spent it according to the three conditions mentioned above. In case you have breached them, it is probable that you would be held liable for repaying some or the entire amount of the loan.

A responsible way of spending the debenture would be on things such as wages, running costs, and company bills. The situation will become tricky if you have used the loan amount for personal expenses that in no way are associated with the business. 

What you are in no shape to repay

What happens if you can’t pay back your bounce-back loan? If this question bothers you, it is better to consult a professional. There is no need to worry if you have used the amount as business expenses or to sustain during the pandemic. The dictated terms of the loan offer an extended payment time. If you are a limited company and cannot pay the loan in the next 6 years, you can opt for the Pay As You Grow option that stretches the repayment to 10 years. You will be able to repay as your business revives from the lockdown and catches its hold in the market. However, if used otherwise, you are bound to pay the loan back to the government. In the case of a director’s loan account in debt, it is vital to take action early and assess your situation to explore the remaining options.   

When to think of insolvency

In case you are a sole trader and are in no condition to repay the amount, options are quite limited. This is due to the fact that sole traders have very little differentiation between personal and business assets. The best option in such a case is to enter an insolvency process to settle your financial situation.  Liquidating your company will conclude your business in all legal terms. This means that all unsecured debts, including your bounce-back loan, will be written off. Though a very difficult decision, this could be the best one available, saving you from public disownment. This should be carefully considered and only be used if overdrawn director’s loan accounts are in no way to be paid. 


Repaying the bounce-back loan is a challenge for businesses. The answer for do you have to pay back the bounce-back loan offers more options to limited companies than to sole traders. If there is no way to repay the loan and you cannot prove all expenses in the interest of business, declaring insolvency could be the best option.

olivia jones
Editorial Team

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