Many businesses have been familiar with bounce back loans and are now in the process of paying them off. In this blog, we’re looking at the top 10 frauds associated with bounce back loans.
Be aware that if you have committed bounce-back loan fraud, then it’s highly likely that you will face the consequences. More and more directors are being found guilty of bounce back loan fraud and are now facing the consequences. Let’s get into the top 10 bounce back loan frauds.
10 – Businesses applying for multiple COVID support schemes that they weren’t eligible for.
When the various Covid loan schemes were announced, they made it clear who was allowed to apply for what. Some directors have taken it upon themselves to apply for multiple loans with or without the intention of paying them back.
9 – A limited company retaining its loan by failing to file accounts.
This is concerned with directors who have taken a bounce-back loan for the company but have no intention of paying it back. To delay the payment, they have decided not to file their company accounts, which can land you in even more trouble.
Whether you can afford to pay your company debts or not, you must keep your accounts up to date. If you fail to file the accounts, you will be subject to a compulsory strike-off.
8 – Limited companies getting loans by seeking voluntary dissolution.
This is definitely not a good idea. If you’ve taken a bounce-back loan and then tried to strike the company off, you will face the consequences. The company will not be closed, and you will likely face some personal liability.
Unfortunately, some directors are still being told that this is a good idea, but it definitely is not. Many directors are facing prison sentences due to taking these actions.
7 – Group companies not applying as a single group entity
Let’s say there’s a group structure; when it comes to bounce-back loans, they should only apply for one loan rather than for each entity. It’s not a good idea to have requested loans for each entity, and you will likely be asked to repay the money.
6 – Multiple applications from sole traders
As a sole trader, you might have one bank account or you might have multiple using different banking companies. At the time of the loan applications, there was minimal checking, which means that many people were able to bend the rules. One common type of fraud is when people have taken multiple loans from different banks.
5 – Non-UK companies applying for a bounce-back loan
Many company directors applied for the loan through self-certification when their company was actually based in a different country. The bounce-back loans should have only been claimed by eligible UK companies.
4 – Third party fraud
This is something that we have received many phone calls about. During the time of bounce-back loan applications, some people were told to take a loan and give someone a cut of it. This is not how the loans were supposed to be used and will leave you in trouble.
3 – Using the funds for personal use
Upon applying for the bounce-back loan, you had to self-certify that you were going to use the money for the economic benefit of the company. If, instead, you used it for your own personal benefit, you will find yourself in trouble.
Some examples of this can be having a new extension on your home, purchasing a new car, taking the family away on holiday and much more. These actions are not benefitting the company and are not keeping it afloat; therefore, they are not permitted with the bounce-back loan funds.
There is a caveat to this, as many small business owners may have had to use some of the money for general living expenses. This could have been used to pay the mortgage and feed the family. The money was not supposed to be used like that, so what you’ll find is that you now have an overdrawn director’s loan account.
If you’re a director who received £20,000 on Monday and on Tuesday you transferred the money to your personal account – you have not adhered to the rules of the bounce-back loan, and you will be in trouble.
2 – Applications from inactive companies
We often get calls from directors who tell us that they have taken a bounce-back loan but have no other debts. We ask about debts to HMRC, suppliers and more, only to find there are none. After this, we’ll check Companies House and find that the company is actually dormant.
This is a huge red flag. If your company wasn’t trading in early 2020, then you should not have taken a bounce-back loan. If you did take the loan for a dormant company and you go to close it down, it’s going to cause you a problem.
1 – Directors misstating their turnover.
If your company was incorporated before the 1st of January 2019, you had to provide your actual turnover for the application. You were allowed to apply for 25% of 2019’s turnover.
If your company was incorporated after the 1st of January 2019, and you were trading, then you could estimate your turnover up to £200,000 and capped at £50,000.
Misstating your company’s turnover is going to land you in trouble.
We hope you have found this helpful on the top 10 bounce-back loan frauds. Don’t hesitate to contact us if you have any questions.
I'm Chris Worden, Managing Director at Director First. With over 7 years of experience, I help UK directors navigate the complex world of UK corporate insolvency. We offer free and independent advice to UK directors and advise them about what options may be available to them if their limited company starts to struggle.
I am passionate about helping other directors overcome their business challenges and get back on their feet, as I was once in the same position as them. I had a business that became insolvent, and the advice out there was confusing and overwhelming. I am here to provide honest and valuable advice to UK directors.
I am proud to say that we are one of the only 5-star corporate insolvency companies on Trustpilot with hundreds of 5-star reviews, and we publish videos weekly on our YouTube channel. Our channel is designed to educate UK directors about insolvency and debt advice.
