Sole traders face being named if they took out Covid-19 loan

Tribunal could decide this week if the names of 1.7bn small businesses that took out Bounce Back Loans should be made public – leaving sole traders potentially vulnerable to fraudsters

UPDATE: Thousands of sole traders who took out a Covid-19 loan could have their names revealed if a pressure group wins an appeal this week.

An appeal tribunal could agree with anti-corruption campaigners Spotlight on Corruption that the British Business Bank, which oversaw £47bn worth of Covid loans being given to small businesses, must reveal the names of some or all or the 1.7m businesses which borrowed money.

Spotlight on Corruption is pushing for the BBB to comply with a freedom of information request it lodged two years ago. But the bank rejected the request – a decision which was upheld by regulator the Information Commissioner’s Office (ICO).

>See also: Banks to get tougher on bounce back loan defaulters

The fear is that many of those who took out Covid-19 Bounce Back Loans were sole traders, and that publicly naming them could make them easy pray for fraudsters.

Not only that but small businesses that helped themselves to Government-backed Covid-19 loan support never agreed to have their names revealed at the time – a clear conflict between freedom of information and confidentiality rules, one banker told the Financial Times.

Yet official estimates suggest the UK taxpayer faces losses of almost £5bn from fraudsters who exploited minimal checks BBLs, and it’s hoped that naming-and-shaming companies which abused the scheme could help investigators.

The British Business Bank already publishes names of companies that borrowed from other Covid-19 schemes, including Coronavirus Business Interruption Loans (CBILs).

The appeal hearing began today (Monday, November 28) and is scheduled to last three days.

What should I do if I’m named publicly?

Nothing. If you have spent your Bounce Back Loan on protecting your business during the pandemic and not on personal items, such as a new car which has nothing to do with your business or on holidays, you should be fine.

It is unknown as yet yet whether every single company that took out a Bounce Back Loan should be publicly named or just those whose loans are still live or those who have missed bank repayments.

What if my Bounce Back Loan was spent incorrectly?

Jennifer Martindale, partner at Wilsons Solicitors, says it’s imperative that businesses ensure their use of the loans has been in accordance with loan terms and, if not, take steps to rectify the position as best they can.

There are potential grey areas, which may mean some spending by SMEs and sole traders might be perceived by the Insolvency Service as personal spending, despite the SME/sole trader believing they were using the loan for the benefit of the business,  such as purchasing a car for the business, which is then also used for personal purposes. 

For SMEs and sole traders identifying now that loan funds may have been misspent, it remains to be seen whether steps can be taken to prevent action for misconduct by The Insolvency Service (which will usually only happen if the loan is not repaid).

Thorough internal investigations should take place to ensure compliance with the loan terms/BBLS and appropriate steps taken to recover misspent loan funds. 

What if I can’t repay my Bounce Back Loan?

If, in the longer term, a BBLS loan is not repaid, then The Insolvency Service may investigate the business and its use of the loan funds.  If The Insolvency Service finds that there has been misconduct, it may wind up the company, disqualify directors, and obtain a Court Order for directors/sole traders to pay compensation from personal resources to creditors.

Because of the self-declaration required when applying for BBLS loans, ignorance will never be accepted as a defence for using the loan for personal expenditure, so it’s vital that repayments are made as soon as possible to mitigate risks of Insolvency Service investigation and action, and subsequent bad press.

>See also: What happens if I can’t repay my Bounce Back Loan?

What if one of my directors has misspent Bounce Back Loan funds?

For SMEs with multiple directors, if it comes to light that one has misspent the loan funds without the board’s knowledge, the wider directorship should ensure that the individual(s) pays back those funds spent in breach of the loan terms (and perhaps consider removing the director from office).

What if I’m a sole trader?

For sole traders, it will simply be a case of paying back what has been misspent and hoping that is sufficient to ameliorate the error.

Further reading

Government Bounce Back Loan for your small business

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Tim Adler

Tim Adler is group editor of Small Business, Growth Business and Information Age. He is a former commissioning editor at the Daily Telegraph, who has written for the Financial Times, The Times and the...