Bounce Back Loan - Have I done anything wrong?

CovidWorried

I'm a sole trader and took out a bounce back loan of £40,000 back in May. At the time, cash flow was extremely tight. I had already deferred my April VAT payment of £14,000 and was dipping in and out of my overdraft. I was owed £30,000 from clients who obviously had difficulty paying.

When I received the bounce back loan, I paid off an existing £7,000 business loan (with same lender), paid the £14,000 deferred VAT bill and used it to cover employees salaries etc... for a month or so.

However, business continued throughout. We were all able to work from home (no furlough), and continued to generate income. From late June to present, clients have found it easier to pay due to going back to work, SEISS grants and getting their own loans. During which time, I've been drawing about £2,000 per week from my business, totalling at around £40,000. I had profits retained in the business from previous years so the drawings are from profit. 

I still have £15,000 in the bank from the bounce back loan. So I used about £25,000 of it. I'm currently owed about £55,000 from clients (up £25,000 from April), so I've used the bounce back loan to cover the increase in outstanding debtors.

My question is, have I done anything wrong by withdrawing my profit? In theory, I could've drawn far less money and repaid the bounce back loan. Have I acted improperly? I am quite confident that my business will continue and the loan will repaid in full over its term.

Note: I didn't simply just withdraw £40,000 after getting the loan. I took it gradually as funds came in from clients. I used the drawings to support myself and family members who were in need.

Admittedly, I'm a worrier. I'm worried the bank will see that I made regular £1000/£2000 transactions to myself over the last 4 months and I'll end up in trouble. If that happened, what would the consequences be?

[Deleted User]

Surely a quick email or call to the accountant would be the best person to ask ?

Jeremy535897

You could equally say that the business always paid you around £1,000/£2,000 a month (assuming this is true) and that what the BBL is actually being used for is to finance the increase in your debtors.

The guidance on payments to staff (including controlling directors) of limited companies is that a BBL may be used to fund current salary levels (even for the business owner), but not increases, and not dividends (although this has been relaxed). If you keep drawing the same amount or less than you have always drawn, I do not think there will be any issue. Martin received some comfort on the issue as set out here:
https://www.moneysavingexpert.com/news/2020/05/small-business-boost-as-bounce-back-loans-launched/

You should read the terms and conditions of the loan you took, to establish what, if any, terms there are dealing with what is a breach and the consequences, but I don't think that you are likely to be at any risk.

macman

Sole trader, but you mention employee's salaries? You are turning over at least 160K pa but not a limited company?
You say that clients are now finding it easier to pay, but debt owing to you has more than doubled?

warby68

An ongoing viable business is unlikely to attract much scrutiny as to how the BBL was spent. There are many more levels of dubious use of the BBL scheme.
There was no obligation to repay the BBL early
There is nothing wrong if your business recovered more quickly than expected.
If your drawings are however higher than usual then whether that's sustainable and have you covered the tax etc are questions for business viability.
It would be different if you'd stripped the business and left it in difficulty but that doesn't seem to be the case.

CovidWorried

I'm a sole trader turning over about £200,000 per year. Make about £70,000 profit per year. Not a limited company. I've done about £95,000 of work this year and showing a profit of around £40,000 so far. Yes, clients are finding it easier to pay than in April/May, but some are still struggling so debtors have increased.

mobilejo

I don't see a problem.

You have used part of the loan to reduce debt, pay VAT and pay employees. All things that are permissible with the BBL.

There is no condition that says a business taking a BBL must (a) make no profit and (b) in the case of sole traders, not take drawings. I just can't see the issue - you have only withdrawn money that the company has made in profit.

CovidWorried

Jeremy535897 said:

You could equally say that the business always paid you around £1,000/£2,000 a month (assuming this is true) and that what the BBL is actually being used for is to finance the increase in your debtors.

My drawings have increased significantly. Previously, I made about £70,000 profit per year and drew about £50,000. Hence why I have retained profits. But those profits either clear long term liabilities or get invested into fixed assets. My drawings in 6 months year are £40,000 but I am showing a profit of £40,000 in that period too. But the debtors increased so the loan was required.

Grumpy_chap

If you will be able to repay the BBLS in the proper time, I doubt there is anything to worry about and doubt anyone will come looking.  Even if they did, what the OP describes seems reasonable.
If the OP suddenly closes up shop next week, that will change matters, and he can expect to be pursued.  As Warby said, the BBLS is there to support on-going viable businesses and it sounds as though that is what the OP has.

warby68

Again, if you draw too much and threaten the business then it 'might' raise a question down the line but not as directly as you've used the BBL incorrectly from the outset. I can't see that you have. If your business now grows you will have to leave some of your profit in again to fund its working capital, repayment of the BBL in due course and reinvestment, just as you did before. Its more about what the business can afford for you to draw longer term.

Jeremy535897

I would generally agree with what is said, but why have your drawings increased quite significantly? Not that there is anything you can do about that now.