Check Out What Happens When Borrowers Defaults Bounce Back Loans!

The ongoing COVID-19 pandemic left a huge toll on the financial health of many small or enterprise-level businesses. Considering the diminishing health of many businesses, during the initial months of the pandemic, the UK government launched bounce-back loans on 4 May 2020. These funding options are entirely different from regular business loans, as they bring along preferable and flexible loan terms. Keep reading ahead to understand their ins and outs and what happens if you can’t pay back your bounce back loan. 

What is a bounce back loan?

A bounce back loan is a financing option that offers favorable loan terms to small businesses for availing affordable and instant funds. One of the most prominent features of a bounce back loan is that no interest is charged for the first 1 year. Furthermore, as the loan is government-backed, the lenders do not demand any assets to be kept as collateral. 

What happens if the borrower can not repay the bounce back loan?

There is no security attached with bounce back loans due to the absence of collateral, these loans are treated as unsecured loans. As directed by the government, the lenders can follow their usual protocols for chasing and enforcing loan defaults. The chasing process can include receiving threatening letters, court action, etc. The lenders can even pursue borrowers for unpaid loans through the courts if need be. However, one of the prominent setbacks of these unsecured loans is that it becomes challenging for the lenders to chase the sheer volume of loan defaults. Thus, the immediate reaction of the loan default may not be witnessed, but it will eventually happen. 

In case the borrower or the business is unable to repay the bounce back loan, and the business has reached the stage of insolvency, the company is likely to be liquidated. Insolvency is the state where the business is struggling to keep up with its expenses or is simply unable to pay the bills and its employees. During the state of insolvency, the creditors and the shareholders are paid with the due amount by dissolving the company. If you are wondering do you have to pay back the bounce back loans, keep reading along!

How to avoid the personal liability of bounce back loans?

As discussed earlier, the bounce back loan is launched to help small businesses that have witnessed a great financial impact due to the pandemic. Companies struggling to pay the debts, employees, or other bills can use this funding option to address their urgent financial needs. 

However, even after availing the bounce back loans, some businesses still fail to keep pace with the competitive market. These situations lead to the company’s directors being concerned about the potential implications of the loan. The business owners, creditors, and other shareholders can then decide to liquidate the company. This can help all the involved parties to get their invested amount by selling off the company’s assets. This is where insolvency practitioners come into the picture! These professionals conduct an investigation to determine if there is any scope of business improvement or if Bounce Back Loan has been misused. After analyzing the complete situation, a firm decision regarding liquidation is taken. 

Apply for bounce back loans to get favorable loan terms!