I’m a Sole Trader and Can’t Pay My Bounce Back Loan

Bounce Back Loans (BBLs) once offered much-needed respite for businesses across the UK. Now, they’ve transformed into a source of worry for many.

This is especially true in the case of sole traders, who have to face up to debts alone – without the buffer of limited liability.

In this article, we’ll be exploring the potential consequences unpaid bounce back loans can have on directors, and what options you have to deal with them.

Can Sole Traders Be Made Personally Liable for Bounce Back Loans?

Limited companies and partnerships enjoy the protection of something known as limited liability. This protects business owners, partners and shareholders from having to personally repay corporate debts should their business fail.

As a sole trader, however, you won’t be afforded the benefits of limited liability. Typically, in the case of a business loan, this would mean you have to assume all company debts. This would allow for recovery actions to be taken against your home and personal vehicle.

Thankfully, the British Business Bank has made assurances that while you can be made personally liable for a BBL, your home and vehicle will be safe from recovery action.

However, lenders can still petition for you to be made bankrupt – if this happens, your house and vehicle will no longer be safe.

What Options Do I Have if I Can’t Repay?

If you’re unable to repay, there are a range of options available to you. These range from challenging the debt, renegotiating the terms of repayment, to pursuing formal insolvency procedures.

Pay As You Grow

The Pay As You Grow scheme was introduced in September 2020 to make paying back Bounce Back Loans more affordable. If you haven’t taken advantage of the scheme, it should be your first course of action. Pay As You Grow allows businesses to:

Extend the repayment period from 6 years to 10 years
Switch to interest-free payments for 6-month periods up to 3 times
Pause repayments entirely for one 6-month period

Using the Pay As You Grow scheme won’t affect your credit score.

Getting an IVA

If you’ve already exhausted the provisions of the Pay As You Grow scheme, or are still otherwise unable to afford your Bounce Back Loan repayments, you may want to consider an Individual Voluntary Arrangement (IVA). This is a great option if you want to protect your personal assets and avoid bankruptcy.

An IVA is a formal insolvency procedure which acts as a repayment plan. It includes all your unsecured debts, such as your Bounce Back Loan. An IVA encompasses a range of benefits:

Your debts will be frozen
Creditors can’t contact you directly
Your assets will be protected from debt-collection efforts

In exchange, you will pay monthly contributions into a “pot” which is then divided up between your creditors. An IVA typically lasts for five years.

Declaring Bankruptcy

Although this might not seem appealing, bankruptcy can actually be the best option for certain sole traders. If you don’t own your own house or vehicle, bankruptcy might be a better choice for you to pursue.

A formal insolvency procedure, bankruptcy offers its own set of benefits:

All of your debts will be written off after 12 months
Your creditors won’t be able to contact you directly
You will be protected from creditors’ legal actions

A distinct advantage of bankruptcy when compared to IVAs is the timescale. Bankruptcies are completed after 12 months, as opposed to 5 years.

Speak to an Expert Today

When facing large debts it’s best not to make any hasty decisions. Rushing into action can end up making the situation worse or prevent you from achieving a better outcome.

Instead, you should get in touch with an expert. Our insolvency practitioners can help you to weigh up your options and guide you to the best course of action for you. While no two cases are the same, one thing is always certain: the sooner you get advice, the better.

Contact our team to arrange a free consultation today.