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Have I misused bounce back loan accidentally?

Seeing lots of BBL questions, so here's mine.

Didn't find your answer?

I borrowed a £40k BBL and since then, I've taken about £40k out of my business in drawings (sole practitioner).

The loan was taken when the bank balance was around £1000, cash flow hit hard.

All debts, taxes etc... are paid up to date, including deferred March VAT bill of £10k.

£7k of the BBL was used immediately to clear an existing loan with the same bank to consolidate the debt and reduce interest.

There is £22k still in the business account. I have a £20k overdraft facility that could've otherwise been used but would've incurred interest.

I've been reading horror stories about misuse of bbl's and I'm worried. Have I done something wrong by drawing £40k? I should point out that I received £13k of SEISS which forms part of the money drawn. The remaining money was drawn in chunks of about £2k after I managed to collect in about £25k of old debts when other people got their grants/loans.

Technically I could repay the bbl but it would empty the bank balance and put me to the end of my agreed £20k overdraft and incur interest. So it doesn't make sense to do that.

Sorry. Just a worrier.

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By Lee11_1989
14th Oct 2020 08:05

Maybe. That's the only answer I can give.

Firstly, the SEISS was a payment to you not your business. So it doesn't count as drawings. Therefore your drawings are actually around £27k.

The concern is that you borrowed the money when you were unknowingly insolvent. If that's true, you borrowed the money fraudulently. The main thing to check is that even with the new loan, are your assets higher than your liabilities? If so, you might be okay.

The £7k used to clear the existing loan is perfectly acceptable.

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By Lee11_1989
14th Oct 2020 08:07

Just to add to that, with £7k clearing an existing loan and £22k in the bank, that accounts for £29k of the loan. So at worst, you've misused £11k. Hopefully someone else agrees with that.

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By I'msorryIhaven'taclue
16th Oct 2020 10:42

I'm not following how the sums add up, Lee 11 & OP.

Suppose we start with the the statement in the OP's question: "Since then [borrowing the £40k BBL] I've taken about £40k out of my business in drawings (sole practitioner)."

So which funds exactly have you taken from your business? You've told us "The loan was taken when the bank balance was around £1000" so let's allocate the first £1k you've drawn against that. Then you've said "I should point out that I received £13k of SEISS which forms part of the money drawn." Finally, "The remaining money was drawn in chunks of about £2k after I managed to collect in about £25k of old debts".

As Brucie might have said, let's have a look at the old scoreboard: I make it you've drawn £1k and £13k and £25k = £39k of non-BBL funds. Which means you've chewed just £1k of your BBL.

Whether or not you were insolvent is I suppose another matter; although dibbing in £1k to your BBL loan might technically raise that issue I'm not sure such a small amount would matter much.

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By I'msorryIhaven'taclue
16th Oct 2020 10:45

Duplicated Post

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By I'msorryIhaven'taclue
16th Oct 2020 10:44

Duplicated Post

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By Justin Bryant
14th Oct 2020 10:00

Relax. Even in the extraordinarily unlikely event any problem will result in enforcement action, you will be at the back of a very, very long queue. See: https://www.accountingweb.co.uk/tax/hmrc-policy/bounce-back-loan-scheme-...

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By I'msorryIhaven'taclue
16th Oct 2020 15:39

Duplicated Post

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By I'msorryIhaven'taclue
16th Oct 2020 15:37

Duplicated Post

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By Lee11_1989
14th Oct 2020 10:18

I agree with your calculation. But could HMRC argue that the £25,000 collected from the old debts was used to cover the ongoing business expenses and the OP actually drew money from the BBL?

The old debts in 2019/2020 would've been as asset on the balance sheet. Since then, they've depleted (unless more work has been done to replace these debtors) and the liabilities have increase somewhat due to the BBL. My gut would say that as long as your final capital is still in credit and you are paying your bills, taxes and loan repayments (when due), I doubt it'd be of much concern to anyone.

It'll be very difficult for anyone, HMRC or the lender, to determine exactly what funds you took. Whether they stemmed from capital in busines by recouping old debts or the BBL. It all merges into one.

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By I'msorryIhaven'taclue
14th Oct 2020 10:33

Agreed, for all we know there might well have been substantial current liabilities to negate the £26k of current assets. In which event I guess the OP should default to Justin's link, above, to get a perspective of this loan gravy-train.

I was just trying to get to the bottom of the OP's numbers, as a starting point.

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By Rgab1947
16th Oct 2020 10:17

Cant see what the fuss is about. Is a sole practitioner not allowed to take an income? He has to live as well as else there is no business.

But I probably missed the finer technical detail. But I still think its a storm in a teacup.

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