Can I Take Money Out of My Bounce Back Loan?

One of the questions that is coming up with increasing regularity from our clients is whether they can use the Bounce Back Loan (BBL) that they have obtained as a way of paying themselves or perhaps taking a loan out of the company.

Unfortunately, there are a number of reasons why you shouldn’t do this, so in this post we’re looking at the issue to see what these are. We’ll also give you some options to help you navigate what is a somewhat complex area.

In this post we’re looking at:

What is a bounce-back loan?

Let’s start right at the beginning with a look at the Bounce Back Loan itself. Originally introduced in 2020 as a rapid response to the worsening COVID crisis, the Bounce Back Loan is one of a number of measures designed to shore up businesses that would otherwise be perfectly healthy.

The loan scheme provided amounts ranging from £2,000 to £50,000 (or 25% of turnover, whichever is lower) and was administered by the British Business Bank

Accredited lenders advanced money to customers
In return, they received a 100% guarantee from the British Government
The Treasury paid the interest costs for the first 12 months

The BBL scheme proved to be a vital lifeline for many businesses as there were no payments due in the first year, and the government covered the interest cost for this period. The loan was also payable over a long 6-year term meaning that after the first 12 months, the repayment per month would be a manageable amount.

In total, in the year to 10th May 2021, 1.56 million companies took out a Bounce Back Loan with a total value of some £47.4 billion, so it proved to be a popular and very much needed initiative.

Other forms of company loans

The issues in this post aren’t just confined to Bounce Back Loans. In fact, most of them will apply to most types of loans, with the exception being the loan agreement section.

So, if your company has taken a short term loan in the form of either an overdraft or business loan, or if you have used a form of financing over a longer period, then these could also apply to you and your business.

Why can’t I take bounce-back loan money?

The whole focus of the Bounce Back Loan scheme was to provide short-term capital for business owners to support their business. Whilst many companies were facing difficulties due to the COVID pandemic and specifically during the lockdown, they may not necessarily have been unviable.

Indeed, a lot of companies that found themselves with short-term cash flow stress were inherently profitable and stable. However, the dramatic and widespread nature of the pandemic meant that even successful companies had problems.

It would seem reasonable to suggest that a company could pay money to their owner to cope with any personal cash problems they were having but actually, there are a number of reasons why that is not the case.