Yes, a bounce back loan can be included in an IVA if you are a sole trader.
The Bounce Back Loan Scheme (BBLS) opened for applications on the 4th May 2020. It is a 100% government-backed loan scheme for small businesses in England, Scotland and Wales.
The scheme is designed to help small businesses impacted by coronavirus (Covid-19) to access finance quickly and easily.
Loans of up to £50,000 where made available with no interest or fees to pay for the first 12 months.
Repayments can be spread over a maximum period of 10 years, but many now many sole traders are now finding that they are unable to make the repayments.
Are you allowed to include a bounce back loan in an IVA?
Yes a bounce back loan is closed an an unsecured creditor in any type of insolvency. A bounce back loan is a type of government-backed loan that can be used to support small businesses during the COVID-19 pandemic. The loan is 100% backed by the government, and there are no fees or interest to pay for the first 12 months. After that, the interest rate is 2.5% per year.
The loan was to be used for any business purpose, and it can be repaid early without penalty. An IVA is a formal agreement between a debtor and their creditors to repay debts over a period of time, and it usually includes a provision for repaying debts in full. As a result, it is possible that a bounce back loan would not be able to be included in an IVA.
However, this is something that you would need to discuss with your insolvency practitioner.
Can you still run your business during your IVA?
Yes you can still run a business during your IVA, this is regardless of your trading entity either a Limited Company, Sole Trader or Partnership.
If you’re struggling to pay your debts, an Individual Voluntary Arrangement (IVA) could be a way to help you get back on track. An IVA is a formal agreement between you and your creditors to repay your debts over a period of time, usually five years.
Once you’ve entered into an IVA, your creditors are legally bound to freeze all interest and charges on your debts. This means that you’ll only have to make one monthly payment to your IVA provider, who will then distribute the money among your creditors.
One of the main advantages of an IVA is that it gives you some breathing space to get your finances back in order. However, it’s important to be aware that an IVA may have some impact on your business. However, as long as you keep up with your repayments, an IVA should not prevent you from running your business successfully.
Will including a bounce back loan in an IVA be treated as fraud?
No as along as you have followed the guidelines that was 25% of your business’s turnover to a maximum of £50k. Regardless that you are adding your bounce back loan to an IVA does not make it fraudulent.
If you had taken more that the 25% of business turnover ratio it is better to explain to the insolvency practitioner why this happened. The situation only made worse when no repayment have be made, in regards to repayment of the loan.
Can you stay with the same bank?
In most cases the bank you received the bounce back loan from is also the same bank as you use for your business account, if you are entering into an IVA, the bank is then a creditor, on notification of this they will close your business account, so an alternative will need to be sourced.
This is due to something called the banking set off rule. The rule allows banks to take money from one account in your name to pay another which has fallen into arrears. So, if there are funds in a current account and you fail to pay the loan, bank can take the payment regardless and without your authority.
The only way to ensure that this does not happen is to move to a different bank.
There should be no issue with opening a new business account if your credit rating is good. If you have poor credit, this is not always possible. In these circumstances you may have to open a personal basic account and use this for your business.
Conclusion
If a sole trader has taken out a Bounce Back Loan and is struggling to repay it, they may consider adding the debt to an Individual Voluntary Arrangement (IVA). An IVA is a legally binding agreement between the borrower and their creditors to repay a portion of the debt over a set period of time, usually five years.
The trader would need to meet certain criteria to qualify for an IVA, and would need to work with a licensed insolvency practitioner to set up the arrangement. It’s important to note that adding a Bounce Back Loan to an IVA would likely have a negative impact on the individuals credit score.
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.