Have you taken a bounce back loan to support your business because it was affected because of the Coronavirus pandemic and are not able to pay back?
Now is the time when you might be wondering about the consequences you have to face.
This piece of information explains the answer to the question, covering the benefits and disadvantages that come along.
Therefore, let us get started without any further delay.
Understanding the bounce back loan program
Do you have to pay back the bounce back loan?
Before finding the answer to this question, let us first understand the bounce back loan program.
Well, the motive of this loan program was to help both medium and small sized businesses that were affected by the Coronavirus pandemic.
The loan program was introduced by the government of the UK.
They wanted to help the businesses financially during these tough times. In addition to rent deferrals, restrictions on statutory demands, and furlough, the government backed loan program meant the following:
- The loan term was somewhere upto six years
- All type of businesses can borrow about twenty five percent of their turnover or an amount of £50,000
- The eligible businesses were not asked for any sort of credit checks
- There was no rate of interest to be paid for the first twelve months. After twelve months, a rate of interest of 2.5 percent was to be paid.
- There was no personal guarantee for the loans disbursed to the business owners.
Pay as you grow scheme rule
As of 2021 February, the UK government also provided the business owners with an option to “pay as you grow”.
- The loan term was increased to ten years and 2.5 rate of interest if a business owner was unable to pay back the loan.
- They were allowed to take a six months break.
Even though there were some experts who asked the government of the UK to forgive the bounce back loan debt, there are no studies that state that anything like this ever happened.
So what happens if you are not able to repay the loan?
No business owner would lose any asset, for example their house because the bounce back loans were not guaranteed.
In addition to this, the credit score was also not affected whatsoever.
Banks will simply get in touch with the business owner who opted for the loan option.
Different teams are prepared and they contact the owners. The motive of getting in touch with them is to discuss the reasons as to why they are unable to repay.
Everything from rate of interest to increasing the repayment time is discussed and then a decision is taken.
This way it gets easier for the business owners to gather sufficient funds and then pay back according to their situation.
So what most certainly will happen is:
- The bank will let other lenders know that you were not able to repay the loan on time which is why no one will lend any money in the future.
- A default will be logged in the credit score.
- The lender may take a court action if you are unable to pay back the money for a long period of time.
- Without any personal liability, the directors will liquidate the company.
So make sure you pay back the bounce back loan on time.