What is deemed misuse of a Bounce Back Loan?

What is Bounce Back Loan misuse or fraud?The government’s Bounce Back Loan scheme has come under fire in recent months for allegedly being misused by some businesses.

The scheme, which was launched in May 2020, provides loans of up to £50,000 to small businesses affected by the Covid-19 pandemic. The loans are 100% government-backed and can be repaid over a period of six years.

However, there have been reports of businesses using the loans to purchase luxury items, such as cars and holidays. There have also been allegations that some businesses have used the money to pay off personal debts, rather than using it to support their business.

As a result, there is growing calls for the government to tighten the rules around what counts as eligible expenditure for a Bounce Back Loan.

Until then, it seems that many businesses will continue to take advantage of the scheme, whether they actually need the money or not.

What is Bounce Back Loan misuse or fraud?

Bounce back loan misuse is when instead of using the Bounce Back Loan to help inject working capital into the business, you have spent the funds on personal purchases, or transferred the money to your personal account without extracting it from the business as a salary or dividend.

Misusing Bounce Back Loan funds in this way could have serious repercussions should the business be unable to repay the loan in the future and your company subsequently enters liquidation. If you are found guilty of misusing Bounce Back Loan funds, this could be seen as fraud, and you may be held personally liable for repaying the outstanding balance due on the loan. You may even be investigated by the Insolvency Service and face director disqualification, as well as a heavy fine.

Understanding Bounce Back Loan fraud and misuse

The Bounce Back Loan Scheme (BBLS) was introduced by the UK government in response to the Covid-19 pandemic. The scheme allows small businesses to access loans of up to £50,000, with the government guaranteeing 100% of the loan.

The BBLS has been widely used by small businesses across the UK, but there have also been reports of fraud and misuse. In some cases, criminals have used false information to apply for loans, which they then use for personal gain. In other cases, businesses have used the loans for purposes other than what they were intended for, such as making home improvements or taking vacations.

The government has said that it is working to crack down on BBLS fraud and misuse, and has urged businesses to use the loans carefully and only for their intended purpose. If you are thinking of applying for a BBLS loan, make sure you do your research and only apply to a reputable lender. And if you have already received a loan, make sure you use it wisely.

What is regarded as misuse of a Bounce Back Loan?

The government stated that any state backed finance must be used for the ‘economic benefit of the business.’ This is a broad term that could be misinterpreted, so if you’re worried that you’ve used the bounce back loan funds incorrectly, you my wonder what could misuse involve?

Misuse of a bounce back loan include, but not be limited to, one or more of the following:

  • Purchasing new personal assets with the funds
  • Transferring lump sums into a personal bank account
  • Giving the money to a third party, such as a family member or friend
  • Funding directors’ salaries or dividends significant

Consequences of misusing BBL funds is whether or not your business can repay the loan, should the business now enjoy good financial health, how a Bounce Back Loan was used might not become apparent. An issue regarding misuse can arise, say if company falls behind with its repayments.

Worried I may have fraudulently used my Bounce Back Loan

If you are worried that you may’ve fraudulently used the bounce back loan and not in the interest of your business, and are able to continue to make the necessary repayments on its Bounce Back Loan, you will not be required to state what you spent the money on. 

The issue will only arise should the business enter insolvency that investigations regarding the use of the loan will be started.

Should your company be forced to cease trading and close down with an outstanding unpaid Bounce Back Loan, this is when the use of the funds will be investigated.

If the insolvency practitioner has reason to believe you have used these funds for personal rather than business reasons, you could find yourself being held personally liable for fraudulent use of Bounce Back Loan monies.

Company liquidation and Bounce Back Loans

When a company enters liquidated it is the office-holder legal duty to investigate the reasons behind why the business failed, they will check for issues such as negligence and fraud.  The company affairs will be scrutinised, the liquidator has the legal authority to go as far back as necessary should they suspect fraudulent activity has taken place.

If your company is on the verge of liquidation and you have any concerns or worries that you might have misused your Bounce Back Loan, please get in touch with our team. We will offer reliable advice on whether misuse has occurred, and how you should proceed.

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