Bounce Back Loans: what aspiring lawyers need to know

Answer

The Bounce Back Loan Scheme was introduced by the UK government in May 2020 to help small businesses survive the economic impact of the Covid-19 pandemic. Although the scheme officially closed in March 2021, many businesses are still repaying these loans today and legal issues continue to arise. For students who are considering a career in law, this scheme provides an excellent case study in commercial law, insolvency and regulatory compliance.

Under the scheme, businesses were able to borrow between £2,000 and £50,000, with the amount capped at 25% of their annual turnover. The interest rate was fixed at 2.5% per year, and the repayment term was initially six years, later extended to 10 years under the government’s Pay as You Grow options. The loans were 100% guaranteed by the government to lenders, but this guarantee didn’t extend to borrowers, meaning that businesses remain fully responsible for repayment. For the first 12 months, no repayments or interest were required, which provided immediate relief during the height of the pandemic.

From a legal perspective, several issues arise from these loans. Borrowers remain fully liable for repayment despite the government guarantee to lenders, and failure to repay can lead to debt recovery actions, court proceedings and insolvency. Misuse of funds, such as spending the loan on personal expenses or submitting false applications, can result in fraud investigations and criminal charges. Directors of companies that become insolvent must comply with their duties under the Insolvency Act 1986, and failure to do so can lead to personal liability for wrongful trading or misfeasance. While the Pay as You Grow options provide flexibility by allowing borrowers to extend the loan term, make interest-only payments or take a payment holiday, these measures don’t reduce the total amount owed and must be understood in the context of contractual obligations.

For aspiring lawyers, this area of law is highly relevant because Bounce Back Loan cases frequently appear in insolvency proceedings, debt recovery actions and director disqualification hearings. Lawyers play a crucial role in advising clients on repayment obligations, negotiating with lenders and responding to enforcement actions. They also help businesses restructure, manage insolvency processes such as company voluntary arrangements or Individual voluntary arrangements, and defend claims relating to fraudulent trading or misuse of funds. Advising on ethical and compliant use of funds is another critical responsibility.

The Bounce Back Loan Scheme is a clear example of how law intersects with finance, regulation and ethics. Understanding these issues will prepare law students for careers in commercial law, insolvency and corporate advisory work. It demonstrates the importance of legal advice in protecting clients from financial and personal harm and highlights the need for early engagement with solicitors when businesses face financial difficulties.

Sophie McAuley is an associate in Michelmores LLP’s Bristol office.