With many businesses devastated by the Covid pandemic, government measures like furlough and bounce-back loans were often lifesavers. However, when the time came to start paying back, not everyone repaying as easy as borrowing. Sometimes this was due to ongoing challenges, but some cases were self-inflicted.
Bounce-Back Loan Fraud — Convictions Begin
Because of the urgency of the situation, bounce-back loans were often granted with a minimum of due diligence by the lending banks. As a result, while the vast majority were arranged in good faith, some unscrupulous business owners took advantage of the situation.
However, this is now coming back to bite them, with the first of probably many convictions for bounce-back loan fraud. In June, Abdulrazag Zagroba was convicted of misappropriating £20,000 of loan money for personal use.
The money was supposed to be used to help his business, Amigo Pizza (Manchester) Limited, but Mr Zagroba had failed to inform the lender that, at the time of application, he’d already applied to dissolve the company. The money was spent on various personal uses, including a car, and by the time repayments were due, the company no longer existed.
Mr Zagroba was sentenced to 24 months in prison and disqualified from being a Director for seven years. And this case looks like opening the floodgates to similar convictions in the months to come.
Difficulties in Repaying Bounce-Back Loans
While some business owners, like Mr Zagroba, cynically defrauded the lender, many more took out loans in good faith but now find difficulties in meeting the repayments. This is often due to ongoing challenges to business, caused by a combination of the Brexit aftermath and the supply disruptions connected with the war in Ukraine.
The important thing for any business owner in this position is to be honest to their lender and inform them of the difficulties. There are actually options built into the system, through the Pay As You Grow system. This allows you to extend your repayment period, pay only the interest for six months or take a six-month payment holiday.
It’s important to understand that you’ll still need to pay the money due during these holidays, and it may lead to the total repayment being higher in the long run. However, it could be a short-term means to get through a difficult period and avoid insolvency.
Get Expert Advice
Any business owner whose business is in difficulty needs to seek advice and help sooner or later. This may involve an insolvency practitioner — who, despite their title, will initially try to help you avoid insolvency.
However, it could be that your problems in meeting the loan repayments are due to customers who are delaying or ignoring payments due to you. If so, give me a call to discuss how I can help in getting the money due to you flowing in again.
