Picture this: you took out a Sole Trader Bounce Back Loan to support your business during the pandemic, but now you’re struggling to repay it and thinking,
“I cannot afford to make the interest rate and only repayments on my sole trader bounce back loan cannot afford to make loan interest only repayments to work it.” What are your options? Don’t worry, we’ve got you covered. Let’s explore the solutions available to help you navigate this difficult situation.
Short Summary
- Understand repayment requirements and explore alternative options if necessary for successful management of a bounce back loan.
- Failure to repay the loan can lead to serious consequences, including personal liability and asset liquidation.
- Seek professional advice on alternatives such as the Pay As You Grow scheme, interest-only payments or payment holidays. Formal insolvency processes may also be an option.
Understanding Sole Trader Bounce Back Loans
The Sole Trader Bounce Back Loan is a government-backed loan program designed to provide financial assistance to small businesses and sole traders affected by the coronavirus pandemic. While these loans were a lifeline for many, repaying them might pose a challenge.
If you fail to repay the loan, you may face legal action, a decrease in your credit score, and increased debt due to interest and fees.
So, it’s crucial to manage loan repayments effectively and explore alternative options if you’re struggling.
The Bounce Back Loan Scheme
The Bounce Back Loan Scheme was designed to assist small businesses during the pandemic. Loans of up to £50,000 can be accessed through this scheme.
These loans are considered unsecured debt, meaning there’s no need for collateral. However, the responsibility of repaying the loan still falls on the sole trader, so it’s essential to understand the repayment terms and conditions.
Repayment terms include a 4-year loan term, interest-only payments, and payment holidays, but the government guarantee does not apply to sole traders.
This means that if you default on your loan or cannot afford to repay and make interest only or cannot afford to repay downments on thements, the lender could pursue you personally for the outstanding debt. Therefore, it’s vital to assess your ability to repay the loan and consider alternative options if necessary.
Repayment Terms and Conditions
As a sole trader, you’re personally liable for the Bounce Back Loan, even though personal guarantees were not required, and collection action cannot be taken against your primary property or personal vehicle.
The repayment terms for sole traders include a 4-year loan term, interest-only payments, and payment holidays.
However, it’s important to remember that the government guarantee does not apply to sole traders.
As a result, failure to repay the loan can lead to serious consequences, making it crucial to explore alternative repayment options if you’re struggling.
Personal Liability for Sole Traders
Sole traders are personally liable for Bounce Back Loans, even though personal guarantees were not required, and collection action cannot be taken against their primary property or personal vehicle.
This means that if you default on your loan repayments, the lender could pursue you personally liable for the outstanding debt, which could lead to legal action and bankruptcy proceedings.
In order to avoid these consequences, it’s essential to explore alternative repayment options and seek professional advice if you can’t or cannot afford to repay back the loan.
Personal Assets at Risk
For sole traders, both business and personal assets may be susceptible to risk in the event of business debts or losses.
If you’re unable to repay the Bounce Back Loan, you may be required to use personal assets such as savings, investments, and other assets as collateral.
This can put your financial future in jeopardy and make it even more difficult to recover from the economic impact of the pandemic.
Therefore, it’s critical to assess your credit rating and repayment capabilities and consider alternative options if necessary.
Bankruptcy Implications
Bankruptcy may be pursued if a sole trader fails to repay the Bounce Back Loan, which could have serious implications for their future.
When a sole trader is declared bankrupt, their liability for business and personal debts is absolved, but their assets will be liquidated to satisfy creditors.
Additionally, certain restrictions will be imposed, making it harder to access credit or start a new business.
If you’re unable to repay your bounce back loan and don’t have a personal asset to secure it, bankruptcy may be a viable choice.
Although this course of action can have significant repercussions, it can be a successful way to clear outstanding debts and start afresh.
However, it’s essential to weigh the pros and cons carefully and seek professional advice before considering bankruptcy as a viable solution either.
Alternative Repayment Options
If you’re struggling to repay your Bounce Back Loan, there are alternative repayment options available, including the Pay As You Grow scheme, interest-only payments, and payment holidays.
These options can provide you with increased flexibility in repaying your loan, reducing the burden of loan repayments, and minimising the risk of default.
Pay As You Grow Scheme
The Pay As You Grow scheme is a government-initiated program that provides sole traders with increased flexibility in repaying their Bounce Back Loans.
This scheme enables businesses to extend their loan term by up to six months to 10 years, reduce their monthly payments by opting for interest-only payments, or take a repayment holiday for either up to six months or 6 months.
By extending the loan term and reducing monthly payments, the Pay As You Grow scheme can help struggling sole traders manage their finances more efficiently, without affecting their credit score.
However, it’s important to remember that extending the loan term can also increase the overall amount of interest paid on the loan.
Interest-Only Payments and Payment Holidays
Interest-only payments refer to a loan repayment structure where the borrower pays only the interest on the loan each month, instead of the principal and interest. This results in reduced monthly payments, without reducing the amount of the loan.
Payment holidays, on the other hand, are a period of time where the borrower is not obligated to make any payments on the loan.
This can provide the borrower with temporary respite if they’re having financial difficulties or difficulty in making their payments.
Both interest-only payments and payment holidays offer the advantage of allowing the borrower to make reduced payments each month or take a break from making payments for a set period.
These options can help you manage your finances more efficiently and decrease the likelihood of defaulting on your bounce back loan.
However, it’s crucial to evaluate your financial situation carefully and consult your lender to discuss the most suitable repayment options.
Formal Insolvency Processes
Formal insolvency processes, such as Individual Voluntary Arrangements (IVAs), can be used to write off debt.
However, these processes come with drawbacks, such as a negative impact on your credit score and the need to release equity from your house.
Before considering a formal insolvency process for limited company, it’s essential to weigh the pros and cons and seek professional advice.
Individual Voluntary Arrangement (IVA)
An Individual Voluntary Arrangement (IVA) is a formal insolvency process that enables individuals to settle their debt. It is a legally binding agreement between the debtor and their creditors, wherein the former is obligated to pay back a portion of their debt over a five-year period.
The advantages of an IVA include a fixed payment schedule, a halt on interest and fees, and protection from creditors.
However, there are some disadvantages to an IVA, such as an adverse effect on your credit score, adhering to a stringent budget, and potentially releasing equity from your home to help repay the loan.
It’s crucial to always seek advice and professional advice from an insolvency solicitor before initiating an IVA to ensure that you’re not adversely affected.
Other Insolvency Options
In Scotland, other insolvency options such as Scottish Trust Deeds and Sequestration are available. A Scottish Trust Deed provides a longer period to repay a portion of debts, and any remaining amount owing on the Bounce Back Loan or other debts can be waived.
Sequestration involves appointing a Trustee who sells any assets held, and repays creditors up to the extent possible. After being discharged from bankruptcy, any unpaid portion of the bounce back loan is waived.
These alternative insolvency options can provide relief for struggling sole traders, but they also come with their own set of challenges and consequences.
Before pursuing any insolvency option, it’s important to consult with a professional adviser to understand the implications and ensure that it’s the right choice for your situation.
Seeking Professional Help and Advice
Given the personal liability risks associated with bounce back loans, it’s crucial for sole traders who can’t afford repayments to seek professional help and advice.
Debt advisers and insolvency practitioners can offer guidance on the best course of action to manage your loan repayments and avoid the potential consequences of defaulting on your loan.
Debt Advisers and Insolvency Practitioners
Debt advisers are experienced professionals who offer advice and support to individuals facing debt difficulties.
They evaluate your overall situation and provide appropriate advice to enable you to effectively manage your debts.
Debt advisers assist people in creating a budget and a plan for debt repayment, as well as providing guidance on how to contact creditors.
Insolvency practitioners, on the other hand, are licensed professionals who specialise in helping individuals and companies in financial distress.
They can provide advice on formal insolvency processes, such as IVAs, and help you navigate the complex legal process to ensure the best possible outcome.
Both debt advisers and insolvency practitioners can offer invaluable support and guidance to sole traders who are unable to repay their bounce back loans.
Free Consultations and Support
Several organisations offer free consultations and support for struggling sole traders, such as Real Business Rescue in the UK and Scotland Debt Solutions for Scottish residents.
These organisations can provide advice on the best course of action to manage your bounce back loan repayments and avoid potential consequences.
By seeking professional help and advice, you can gain a better understanding of your options and make informed decisions about how to tackle your bounce back loan repayments.
It’s essential to be proactive and address any repayment difficulties early on, as ignoring the issue can lead to legal action, a decrease in your credit score, and increased debt due to interest and fees.
Frequently Asked Questions
What happens if a sole trader can’t pay bounce back loan?
If you’re a sole trader and take out a bounce back loan, there is a risk of personal liability if you can’t pay the loan.
It is important to thoroughly assess your finances beforehand and only borrow what you know you can afford to repay.
How do I get out of paying bounce back loan sole trader?
It is possible to negotiate repayment of a bounce back loan taken out by a sole trader. In most cases, you can contact your lender and explain your situation. It is best to provide a payment plan detailing how you will afford to repay the loan, which may be accepted by the lender.
Negotiations can be difficult, but it is worth trying to reach an agreement with your lender. They may be willing to accept a lower amount than the full loan amount.
Can bounce back loan be written off?
Unfortunately, bounce back loans cannot be written off while your company is still trading. However, you may be able to negotiate repayment terms with your company director your lender to help manage the remaining debt burden.
This first recovery action could include lengthening the term of the loan or taking a short repayment holiday.
Can you close a company down with bounce back loan outstanding?
Closing a company with an outstanding bounce back loan is possible, however it is generally not recommended due to the potential for objections and other complications.
Liquidation through Creditors’ Voluntary Liquidation is one option that can be used to close a business, while taking into account the debts owed, including any bounce back loan.
Summary
In conclusion, if you’re struggling to repay your Sole Trader Bounce Back Loan, it’s vital to explore alternative options, seek professional advice, and act promptly to address the issue.
By considering the Pay As You Grow scheme, interest-only payments, or formal insolvency processes, you can find the most suitable solution for your circumstances.
Remember, the key to overcoming this challenge lies in understanding your options, making informed decisions, and being proactive in tackling your debt.