Bounce Back Loan borrowers can defer repayment for twelve months, so you might assume that related debt problems aren’t yet a problem. Sadly, this is a misunderstanding.
Many sole traders that borrowed via this scheme already had significant personal debts. Other self-employed business operators have had to use personal credit lines either to make up for lost revenue or to keep their business afloat.
The end result is that many people have become seriously overstretched by debt. It’s already estimated by official sources that up to 60% of loans made via the BBLS will default.
Bounce Back Loans are often described as being government guaranteed or government backed. To encourage lenders to get money to businesses quickly, the government promised that they would absorb the cost of any defaults in the future.
What isn’t well understood is that this “guarantee” was only put in place to protect the lenders. It does not provide you (the borrower) with any protection at all.
If you default on your loan repayment in the future, you’ll become subject to debt recovery action by the lender. If you cannot repay your loan it may be passed to a debt collection agency and your credit rating will be affected.
Ultimately the government may step in and repay the lender if you cannot pay your loan. That will not remove your responsibility for repaying the loan unfortunately. You’ll remain liable for repayment even if the government has reimbursed your lender via the guarantee.
The only extra level of protection you receive from a Bounce Back Loan is that lenders shouldn’t go after your primary home or your primary vehicle to recover your defaulted debt. Other serious types of debt recovery action and legal action will remain available to the loan providers.
Banks, credit card providers, and mortgage lenders have freely offered payment holidays to affected customers, but this general relief program ends in October 2020. Lenders will still be expected to act sympathetically in this difficult financial environment, but recovery activity is likely to return somewhat towards the pre-pandemic basis.
If you’re a sole trader who will become unable to afford your household bills and/or debt repayments from November 2020 onwards, you should get debt advice as soon as possible.
The debt advice process takes into account all of your debts. Even though no repayment on your Bounce Back Loan is due yet, if you enter any type of debt management solution this loan will also be included in the debt solution.
For expert personal debt help please contact us.
If you live in England, Wales, or Northern Ireland you can access three types of personal insolvency debt solutions.
An IVA (individual voluntary arrangement) usually involves paying an affordable monthly amount for five or six years. Once you complete the arrangement any remaining unpaid debt (including a Bounce Back Loan) gets legally written off.
Entering bankruptcy usually results in you becoming debt-free after just one year. Your debts will be written-off, including any Bounce Back Loan that you owe. Some types of assets might be sold to help repay your debts. If you can afford a monthly payment this will remain in place for three years.
A Debt Relief Order also results in you becoming debt-free (including from any Bounce Back Loan) after just one year. The application fee is only £90, but to qualify you cannot be a homeowner or owe more than £20,000 in total to all creditors.
Residents of England, Wales, and Northern Ireland can also use a non-insolvency debt management plan (DMP). Debt management aims to reduce your monthly payment to an affordable amount and encourages your creditors to suspend interest and other charges. No debt gets written off, so the plan continues until you have cleared your debts in full. You can include a Bounce Back Loan in your debt management plan even if repayment hasn’t become due yet.
If you live in Scotland you can use a different set of debt solutions.
A protected trust deed usually involves paying an affordable monthly amount for a minimum of four years. Once you complete your Scottish trust deed any remaining unpaid debt (including a Bounce Back Loan) gets legally written off.
Entering bankruptcy in Scotland usually results in you becoming debt-free after just one year. Your debts will be written-off, including any Bounce Back Loan that you owe. Some types of assets might be sold to help repay your debts. If you can afford a monthly payment this will remain in place for four years.
The debt arrangement scheme (DAS) is a formal alternative to a debt management plan in Scotland. This debt management solution provides legal protection from your creditors. It also guarantees that interest and charges will stop being added to the debts. No debt gets written off, so your DAS will continue until you have fully repaid your debts. You can include a Bounce Back Loan in a debt arrangement scheme.
Bounce Back Loans (also known as BBLS) were introduced by the government to provide fast capital to small businesses affected by coronavirus and the lockdown. More than one million Bounce Back Loans have been issued to business borrowers.
Self-employed sole traders can borrow up to 25% of their turnover, up to a maximum figure of £50,000. No repayment is due for a year, the interest rates are low, and the repayment terms are long and flexible.
You can access debt advice and debt solutions if your Bounce Back Loan was provided by any of the British Business Bank’s accredited lender panel:
• Adam & Company
• Arbuthnot Latham
• Bank of Ireland UK
• Bank of Scotland
• Capital on Tap
• Close Brothers
• Clydesdale Bank
• Danske Bank
• Funding Circle
• HSBC UK
• Lloyds Bank
• Metro Bank
• Skipton Business Finance
• Starling Bank
• The Co-operative Bank
• Ulster Bank
• Yorkshire Bank
Bright Oak is an established provider of regulated debt help and debt management services. We have a long track record of assisting self-employed sole traders to deal with debt challenges.
At the time of writing we have already advised our first customer with a Bounce Back Loan included amongst their list of creditors.
For expert debt advice please contact us.
Author: Andrew Graveson
Qualified Debt Adviser & Bright Oak’s Founder
Page Last Updated: 21/10/2020