Bank froze business account

skinnish

I have a small LTD company and took out a BBL and stated what turnover would have been if coronavirus didn’t happen. 

Today had a call from the bank saying this is incorrect and apparently I should have put in my last years actual turnover as the business was trading. I want to check this is correct? 

They have asked for proof of what the loan has been spent on-which was used to pay staff wages, other debts off including directors loan and materials to be used in the business. 

They have also asked for accounts for the previous year before the loan was taken out to establish turnover. I was honest and explained to the person on the phone that as the loan had been approved I thought everything was done right. Also the money hasn’t been spent on any supercars or anything the business wouldn’t normally spend on. 

My business did suffer as the result of covid and haven’t maliciously applied for the loan incorrectly just did the same as a business contact had advised. 

I want to check if anyone else has had any similar experiences with the bank and what could be the worst or different case scenarios I could be looking at?

Also to add as the title suggests the bank has frozen the amount of loan remaining in the account. 

As always thanks for reading this thread and any help is appreciated 

p3ncilsharpener

You should have given your actual turnover, not some figure you plucked out of thin air.

I'd be complying with their requests if I were you, if you don't you might find the loan being cancelled and an immediate demand to repay it.

Thrugelmir

Repayment of a Directors Loan is not of economic benefit to the business and would be considered personal use of the funds. Something that was stipulation that you agreed to when applying for the BBL. 

Jonesy1977

You really should not have used the money to repay a "debt" to yourself, this was a mistake and the likely outcome will be that they will ask for a full repayment of the BBL. 

Grumpy_chap

skinnish said:

I have a small LTD company and took out a BBL and stated what turnover would have been if coronavirus didn’t happen. 

Today had a call from the bank saying this is incorrect and apparently I should have put in my last years actual turnover as the business was trading. I want to check this is correct? 

My business did suffer as the result of covid and haven’t maliciously applied for the loan incorrectly just did the same as a business contact had advised. 

I want to check what could be the worst or different case scenarios I could be looking at?

The bank is correct.

The business contact is incorrect.

I won't sugar-coat the worst-case.  It could include termination of banking facility, immediate repayment of the BBLS, fraud marker.  Ultimately prosecution.

In addition, the BBLS required that the loan was "only be used to provide an economic benefit to the business, for example providing working capital, and not for personal purposes".  It is possible that this has not been complied with - repaying the (presumably interest free) Director's Loan for example.

Let's look at how the OP can avoid that worst-case scenario rolling out.

1. The OP probably needs to make immediate repayment of the full BBLS value.  Can that be done?
2. Did the OP take professional advice in applying for the loan (Accountant), or did it themselves?  I assume the latter.
3. The BBLS should have been applied for based upon previous year's accounts (actual), however there was a route to apply on a forecast for new businesses.
   
4. The "would have been without COVID turnover" was the approach for some of the COVID-support funding.  Just not for BBLS.
5. The OP could plead genuine mistake in applying under stressful times with new processes, and did not take professional advice (Accountant) and misunderstood the rules for the new process.  That covers (2, 3, 4) and gives some "excuse" by way of mitigation.  If that is accompanied with a large dose of humble pie and the repayment of the loan, it may bring an end to the matter.
6. How plausible is "mistake" and "misunderstood the rules"?  It may well depend on how much the variance in turnover stated was.  Made up figures as the OP has not shared, but if last year was £24k and stated £25k for the loan, that is plausible.  If the variance was £24k actual and the loan based on £250k, that is less plausible and would start to arouse suspicion.  Irrespective of last year actual, if this year forecast "but for coronavirus" was £200k *exactly qualifying for max BBLS), that will probably look even more contrived.

I think the OP needs to repay that loan and eat massive helpings of humble pie with sorry sorry sorry poured ontop.

Jeremy535897

One possible argument regarding the repayment of the director's loan account is as follows:

What can I use the loan for?
The business must confirm to the lender that the loan will only be used to provide an economic benefit to the business, for example providing working capital, and not for personal purposes.

If the business was a “business in difficulty” on 31 December 2019, then a loan under the Scheme is not permitted to be used for export-related activities[3].

There are no limits on the amount of the facility that can be used for refinancing.

From https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-schemes/bounce-back-loans/faqs-for-small-businesses/

It may not carry much weight, but at least it is something to put forward rather than just conceding that part of the BBL was used "for personal purposes".

skinnish

Grumpy_chap said:

skinnish said:

I have a small LTD company and took out a BBL and stated what turnover would have been if coronavirus didn’t happen. 

Today had a call from the bank saying this is incorrect and apparently I should have put in my last years actual turnover as the business was trading. I want to check this is correct? 

My business did suffer as the result of covid and haven’t maliciously applied for the loan incorrectly just did the same as a business contact had advised. 

I want to check what could be the worst or different case scenarios I could be looking at?

The bank is correct.

The business contact is incorrect.

I won't sugar-coat the worst-case.  It could include termination of banking facility, immediate repayment of the BBLS, fraud marker.  Ultimately prosecution.

In addition, the BBLS required that the loan was "only be used to provide an economic benefit to the business, for example providing working capital, and not for personal purposes".  It is possible that this has not been complied with - repaying the (presumably interest free) Director's Loan for example.

Let's look at how the OP can avoid that worst-case scenario rolling out.

1. The OP probably needs to make immediate repayment of the full BBLS value.  Can that be done?
2. Did the OP take professional advice in applying for the loan (Accountant), or did it themselves?  I assume the latter.
3. The BBLS should have been applied for based upon previous year's accounts (actual), however there was a route to apply on a forecast for new businesses.
   
4. The "would have been without COVID turnover" was the approach for some of the COVID-support funding.  Just not for BBLS.
5. The OP could plead genuine mistake in applying under stressful times with new processes, and did not take professional advice (Accountant) and misunderstood the rules for the new process.  That covers (2, 3, 4) and gives some "excuse" by way of mitigation.  If that is accompanied with a large dose of humble pie and the repayment of the loan, it may bring an end to the matter.
6. How plausible is "mistake" and "misunderstood the rules"?  It may well depend on how much the variance in turnover stated was.  Made up figures as the OP has not shared, but if last year was £24k and stated £25k for the loan, that is plausible.  If the variance was £24k actual and the loan based on £250k, that is less plausible and would start to arouse suspicion.  Irrespective of last year actual, if this year forecast "but for coronavirus" was £200k *exactly qualifying for max BBLS), that will probably look even more contrived.

I think the OP needs to repay that loan and eat massive helpings of humble pie with sorry sorry sorry poured ontop.

Hi and thanks for taking the time reply.

Just to make clear part of the directors loan was for mileage (around 30%, and the same) was for salaries paid out of my own pocket and the rest was for equipment bought and supplies bought for the business. I normally buy on my personal card as I get some cashback and then get repaid by the company.

I am able to repay and will be doing so in the next few days but obviously pulling out 50k is not easy and will leave me in some financial difficulty. I didn't take any professional advice and applied myself just assumed because it had gone through it was all correct as the bank can see all the financials to do with my account. The turnover would have been a lot higher than previous years as we were opening a new business line but could not go ahead due to covid. I will update once I have had more communication from the bank and repaid the loan. 

I have had a look through my agreement and it states;
F. Purpose
You may not use your loan to finance the purchase or hire of fixed assets, other than to replace existing assets with equivalent assets. The loan must be used wholly for the purpose of your Business and not for any personal or other non-business purpose.
Now I don't know if repaying the part of the loan which is for mileage already used for the business is classed as personal. I would not think so but then not too clued up on these legal terminologies.

Thanks again for your reply  

skinnish

Jeremy535897 said:

One possible argument regarding the repayment of the director's loan account is as follows:

What can I use the loan for?
The business must confirm to the lender that the loan will only be used to provide an economic benefit to the business, for example providing working capital, and not for personal purposes.

If the business was a “business in difficulty” on 31 December 2019, then a loan under the Scheme is not permitted to be used for export-related activities[3].

There are no limits on the amount of the facility that can be used for refinancing.

From https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-schemes/bounce-back-loans/faqs-for-small-businesses/

It may not carry much weight, but at least it is something to put forward rather than just conceding that part of the BBL was used "for personal purposes".

Hi thanks a lot for taking the time to reply 

Grumpy_chap

Thanks for updating OP.

It sounds as though the expenditure funded by the BBLS was likely within the definition of permitted expense "economic benefit to the business", which included refinancing.

As an aside, you may wish to consider whether using your personal card for business expenses is the simplest thing to do, or risks creating a blurred boundary between you and the Ltd Co.  That is entirely separate to the BBLS issue.

I suspect the real factor behind the bank's actions is the stated turnover to achieve the loan at £50k (which was the maximum permissible and required the stated turnover to be £200k or greater).  The correct turnover to have used was the 2019 turnover which was a matter of fact at the time of the application.

It is understandable that some applicants misunderstood the rules and used an incorrect turnover figure.  Still incorrect, though.

It is also understandable that the banks look closely at those businesses that suddenly entered a turnover of £200k to achieve the maximum loan and asses whether those applicants were erroneous or fraudulent.  

I imagine a large factor in how a bank treats a discrepancy in turnover is linked to the proportion by which the the stated turnover varies from the actual turnover.

Good luck in getting the matter resolved.

skinnish

Grumpy_chap said:

Thanks for updating OP.

It sounds as though the expenditure funded by the BBLS was likely within the definition of permitted expense "economic benefit to the business", which included refinancing.

As an aside, you may wish to consider whether using your personal card for business expenses is the simplest thing to do, or risks creating a blurred boundary between you and the Ltd Co.  That is entirely separate to the BBLS issue.

I suspect the real factor behind the bank's actions is the stated turnover to achieve the loan at £50k (which was the maximum permissible and required the stated turnover to be £200k or greater).  The correct turnover to have used was the 2019 turnover which was a matter of fact at the time of the application.

It is understandable that some applicants misunderstood the rules and used an incorrect turnover figure.  Still incorrect, though.

It is also understandable that the banks look closely at those businesses that suddenly entered a turnover of £200k to achieve the maximum loan and asses whether those applicants were erroneous or fraudulent.  

I imagine a large factor in how a bank treats a discrepancy in turnover is linked to the proportion by which the the stated turnover varies from the actual turnover.

Good luck in getting the matter resolved.

Hi Grumpy,

So I paid it all back and offered to pay the interest for the first year but was told (after speaking to 3-4 different people) that interest doesn't start till month 13 and there was no charge for the first 12 months to anyone (not even taxpayer). Have been advised that is the end of the matter. By the sounds of it from the contact at the bank they were glad I paid it back and he was saying theres a lot of people defaulting as its life changing amounts of money for some. He also said there is no particular reason this was reviewed and all BBLS applications get reviewed at some point. 


Thanks again for your time 

Grumpy_chap

Hi OP - thanks for updating and I am glad you got it all resolved and are properly back in business