Bounce back loan

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    Bounce back loan

    I was wondering if residents associations company limited by guarantee who self manage block of flats can apply for business bounce back loans. Reason I ask is that one of the main project which is related to health and safety was affected by the pandemic where some of the residents are unable to pay for works which is affecting the company's cashflow.



    #2
    Service charges (which is what you are talking about) are not business expenses - the RMC is simply a custodian.

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      #3
      I was of thinking the same, thank you.

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        #4

        The form you are required to fill in is devoid of any guidance as to the interpretation of the various definitions.

        If you believe as a lay person that "trading income" is income from the trade of being a resident’s association then you could fill in the form and submit it to your bank. Your bank who presumably asked questions of you when you applied for the bank account have the opportunity to review the form before processing it and should know and understand something of your business at the very least – Bank charges are levied so it is not unreasonable to think they should have some background information on your business. If they decide to turn it around in less than 24 hours suggests no care is being applied by the bank.

        PROVIDED you have every intention of paying it back and know you can then I do not see that it is wrong for you to apply - and certainly would not be fraud. The fact there is no box on the form for you to explain you reasoning (unlike other loan agreements) should not be held against you

        I would apply and write in to their head office explaining your decision and keep a copy of that letter. You will probably get the money and I would hold onto it for three months and if your letter to their Head Office gets unanswered then go ahead and use the funds with a very clear plan to get ready in 12 months to start repaying it.



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          #5
          It would be totally negligent to get loans to pay for inability or refusal of some lessees to pay for major works. The Company has a turnover of near zero so stating that service charges are trading income would be an outright lie. No business definitions are required for that to be a fact.

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            #6
            There are health and safety issues that need to be addressed and without funding they could only proceed with the works by forcing those lessees who may be unable to pay (because of the current economic problems) with forfeiture (most mortgagees will pay once a Section 146 Notice is issued)

            By taking up the funding economic activity within our economy can take place by the management company instructing contractors. Which is what the government wants to see happen.

            The lessees would then be able to pay their charges over a longer period of time and not feel frightened and stressed and all the lessees will feel happier that the building is compliant.

            It is my suggestion that they apply and then write to the bank’s head office explaining what they have done and to see what the response if any they get back. If the Bank on reflection think it is incorrect then the management company simply pays back the loan. Certainly, there would be no accusation of fraud.

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              #7
              I can only repeat what I said before. The service charge/reserve fund account is simply a trustee account - it is not part of the business. Lessees in arrears have nothing whatsoever to do with the company being in arrears. The fact that the bank might be blindsided or have taken their eyes off the ball does not mean it is not fraudulent.

              Who exactly is the loanee and who is responsible for repaying this loan. If the freeholder, then it means that if the lessees remain in default, the freeholding company will be liable to repay (and will then be bankrupt and struck off). The freehold will then belong to the crown. The individual lessees have no standing to be responsible for repayment. Or are you suggesting the taxpayer will be responsible for picking up service charge arrears....

              I'm afraid the situation is as it always was - if works are required, and lessees cannot pay, then they have to sell their properties at the prevailing market price.

              And who is going to indemnify the lessees who have paid? They risk losing their asset.

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                #8
                If the FH were to declare that it has "been adversely impacted by the Coronavirus (COVID-19)" that would be an outright lie -- the only way (and the only extent to which) the FH can be adversely impacted is if ground rents are not paid.

                Shareholders might not appreciate lies being told to the government inventing a remit of their "business" that it does not have.

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                  #9
                  The loan is being used to protect a lessee from forfeiture and to help in cash flow, ensure compliance with health and safety and in this case keep economic activity within our economy

                  there is no risk to the tax payer as the loan should be repaid as the management company has the right to get the money in as we know a mortgagee will pay to protect their security if a lessee is subject to a Section 146 notice

                  my proposal would give the bank the opportunity to get the money back before its expended as the borrower would send a letter to them giving background notes to the claim

                  What is your objections IF they do as I have suggested particularly on the point of writing to the bank explaining their actions before expending the money

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                    #10
                    Originally posted by flatpackman View Post
                    The loan is being used to protect a lessee from forfeiture
                    Exactly. The lessee has nothing to do with the Company seeking the loan. This would be like getting a bounce back loan on my florist shop to pay my grandmother's mortgage. The one has nothing to do with the other.

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                      #11
                      In any event the government stands to do quite well on this making around 2% per annum in the loans - when interest rates are so low - could be a tidy earner for the government

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                        #12
                        Originally posted by flatpackman View Post
                        In any event the government stands to do quite well on this making around 2% per annum in the loans - when interest rates are so low - could be a tidy earner for the government
                        I very much doubt that. Even if 1 in 50 loans default/person skips the country etc, the loss will be gigantic. It is likely to be a lot higher than that, and there will be extensive fraud. Governments can make money (at the expense of savers and ordinary people) in a far easier way - they just print it (a type of taxation on people who have devoted their lived to avoid being a burden on the state and others).

                        You could argue that masses are made from student loans (interest 6%), but the losses are in fact eye-watering.

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                          #13
                          Originally posted by AndrewDod View Post
                          You could argue that masses are made from student loans (interest 6%), but the losses are in fact eye-watering.
                          That's backwards.

                          Student loan "losses" are simply government funding of higher education.
                          The loans that are repaid are a reduction in the cost to government of providing higher education.

                          When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                          Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

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