I cannot afford to repay my Sole Trader Bounce Back Loan

What self-employed sole traders need to know about Bounce Back LoansIf you cannot afford to repay your Sole Trader Bounce Back Loan, it can be a stressful and overwhelming situation to be in.

The Bounce Back Loan Scheme was introduced by the UK government to help small businesses affected by the COVID-19 pandemic, and while it provides much-needed financial support, it also comes with the responsibility of repayment.

If you find yourself struggling to make the repayments, it’s important to take action sooner rather than later. Ignoring the issue will only make it worse and could lead to legal action being taken against you.

Reach out to your lender as soon as possible to discuss your options, which may include deferring payments or restructuring your loan.

There may also be other resources available to you, such as debt counselling or financial advice. Remember that you’re not alone and there is help available if you’re struggling to repay your Sole Trader Bounce Back Loan

What self-employed sole traders need to know about Bounce Back Loans

It makes sense that this would be a particularly stressful period if you are self-employed or a sole proprietor and are unable to repay a bounce back loan.

While though sole proprietors do not have the same limited liability protection as limited companies, there may still be some choices available to you to assist you make ends meet.

What are Sole Trader Bounce Back Loans?

During the epidemic, the Bounce Back Loan Plan gave struggling businesses some much-needed financial support. Limited corporations and sole proprietors were able to borrow between £2,000 and £50,000 over a set six-year term using these loans, which were comparatively simple to apply for.

The first year had no repayment requirements, and the government agreed to pay any interest due during that time. The programme has since come to an end, and firms are now 100% responsible for repaying the entire loan amount plus 2.5% annual interest. And some lone proprietors are having trouble in this area.

Can I be made to repay a Bounce Back Loan from my personal funds?

Business owners were not required to give personal guarantees under the Bounce Back Loan Scheme (BBLS), which was one of its key attractions. Limited liability protection is fantastic for business directors, but it’s not so great for sole proprietors and other independent contractors. As a single proprietor, there is no legal distinction between your personal and business funds; as a result, if the business is unable to repay the loan, you are held personally responsible.

The British Business Bank, which provided the BBLS on behalf of the government, stated that while you may be held personally liable for a Bounce Back Loan, collection action cannot be taken against your primary property or primary personal vehicle, so your home and car are protected. The lender may even seek to have you declared bankrupt if other personal assets cannot be used to settle the loan.

Can I write off a Sole Trader Bounce Back Loan?

Unfortunately, it’s not quite that straightforward. The government did guarantee Bounce Back Loans, but it doesn’t imply it will intervene if you can’t pay and settle the problem. Entering into an official insolvency agreement, such as an Individual Voluntary Arrangement, is the only method to effectively wipe off the debt (IVA). You can learn more about the variety of personal insolvency options available to you from a registered insolvency practitioner.

An IVA is a repayment plan that single proprietors can use to pay off their unsecured debts over a normal five-year term. If you comply with the agreement’s terms and complete all of your monthly IVA payments on schedule, any unpaid balance from the bounce-back loan will be forgiven.

What if i can’t pay back my sole trader bounce back loan

If you cant pay back your sole trader bounce back loan there are a number of options available.

If you’re struggling to repay your Sole Trader Bounce Back Loan, there are several options available to you. Here are some possible options:

  • Contact your lender: If you’re having difficulty making your repayments, it’s important to contact your lender as soon as possible to discuss your options. Some lenders may offer a repayment holiday, which will give you a temporary break from making repayments, or may be willing to restructure your loan.
  • Individual arrangement: You can propose an individual voluntary arrangement (IVA) with your creditors. An IVA is a formal agreement between you and your creditors to pay back what you can afford over a set period of time, usually five or six years. It will protect you from legal action and interest and charges on your debts will be frozen.
  • Debt Management Plan (DMP): A DMP is an informal agreement between you and your creditors to pay back what you can afford over a longer period of time. It may be more suitable if you have multiple debts with different lenders.
  • Bankruptcy: If you’re unable to pay your debts, you may consider declaring bankruptcy. This will allow you to be discharged from most of your debts, although it will have serious implications on your credit rating and ability to obtain credit in the future.

It’s important to seek advice from a professional debt adviser before deciding on the best course of action for you. They can help you explore all the options available and ensure that you make an informed decision that is right for your individual circumstances.

Read more: Can a bounce back loan be included in an IVA

What other options are available?

IVAs do not come without drawbacks. In addition to having a negative impact on your credit score, you may need to release equity from your house or adhere to a strict budget in order to repay the loan. Good goodness, there are different choices.

The Pay As You Grow concept, which the government launched, provides you more freedom in how you repay your bounce back loan. One can:

  • Increase the loan’s length from six to ten years.
  • You can do this three times. Change to interest-only payments for up to six months at a time.
  • Repayments can only be stopped completely for six months at a time – You can do this only once

Three months before your payments are due, lenders should get in touch with you to start outlining your possibilities. You can speak with your lender at any time to go over your alternatives for making payments.

Pay As You Grow can help you make the repayments more manageable and give struggling single proprietors some much-needed wiggle room. Your credit score won’t be impacted either.

Even if the effects could be severe, it might still be a good approach to get rid of your obligations.

Read more: Bankruptcy vs IVA

Frequently asked questions

What should I do if I cannot afford to repay my Sole Trader Bounce Back Loan?

If you are unable to repay your Sole Trader Bounce Back Loan, it's important to take action and contact your lender as soon as possible to discuss your options.

What options are available to me if I cannot afford to repay my Sole Trader Bounce Back Loan?

Some options that may be available to you include deferring payments, restructuring your loan, proposing an individual voluntary arrangement (IVA), or considering bankruptcy. It's important to seek advice from a professional debt advisor to explore all of your options.

What are the consequences of not repaying my Sole Trader Bounce Back Loan?

Ignoring your repayments can have serious consequences, such as legal action being taken against you, your credit score being negatively affected, and your debt increasing due to interest and fees. It's important to take action and seek professional help if you're struggling to repay your loan.

Professional help for sole traders

If you’re a sole trader who is struggling with financial difficulties, it’s important to seek professional help as soon as possible. There are many organisations that can provide you with the support and advice you need to get your business back on track.

It can be tempting to try to manage everything yourself, but seeking professional help can be the difference between success and failure. So, if you’re a sole trader facing financial difficulties due to not being able to repay your bounce back loan, don’t hesitate to seek the help you need.

Contact a professional today to get the support you need to get your business back on track.

Steve Jones Profile
Insolvency & Restructuring Expert at Business Insolvency Helpline

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.