What Happens If I Default on a Bounce Back Loan?


Bounce Back loans were a lifesaver for many businesses hit hard by the pandemic. But what if you’re facing difficulty repaying your loan? Defaulting on a bounce back loan can be stressful, and you might be worried about the consequences.

The good news is that bounce back loans are government-backed, meaning the government guarantees repayment to lenders. But defaulting can still hurt your credit score, lead to legal action, and even result in asset seizure. On top of that, it can make it much harder to borrow money in the future, harming your long-term financial health.

However, understanding these consequences empowers you to navigate repayment challenges more effectively. In this guide, we’ll explore the potential consequences of defaulting on a bounce back loan, so you can make informed decisions about managing your repayments.

What Do We Mean By  Bounce Back Loan Default? 

Bounce Back Loan default happens when you don’t repay the money you borrowed under the Bounce Back Loan Scheme. This scheme was set up to help small businesses during tough times, like the COVID-19 pandemic. 

Through the Bounce Back Loan Scheme, the government initially covered the first 12 months of interest payments and any charges imposed by lenders. 

This allowed businesses to postpone repayments during this period. Following the initial 12 months, the interest rate became a fixed 2.5% per annum. Additionally, businesses had the freedom to repay the loan ahead of schedule without facing extra charges.

But still, in case, you’re unable to repay the loan according to the terms you agreed upon with your lender, you’re in default. 

When Will my Lender Contact me if I Default on a Bounce Back Loan?

If you default on a Bounce Back Loan, your lender may contact you soon after you miss a repayment or fail to meet the terms of the loan agreement.

 Lenders typically have processes in place to follow up on missed payments and default situations promptly. They may contact you via phone, email, or letter to discuss your repayment status and explore potential solutions. 

It’s essential to engage with your lender as soon as possible if you’re experiencing difficulties in repaying your Bounce Back Loan.

Defaulting on Your Bounce Back Loan – The Consequences!

Defaulting on a Bounce Back Loan can have serious consequences, both financially and legally. Here are some potential outcomes if you default on your Bounce Back Loan:

1. Legal Action: 

The lender may take legal action against you to recover the outstanding debt. This could involve court proceedings and could result in a County Court Judgment (CCJ) being issued against you.

2. Damage to Credit Score: 

Defaulting on a Bounce Back Loan will negatively impact your credit score. A default will stay on your credit file for six years, making it harder for you to access credit in the future.

3. Asset Seizure: 

Depending on the terms of the loan agreement, the lender may have the right to seize assets or take other forms of collateral you’ve provided as security against the loan.

4. Additional charges: 

Defaulting on a loan may lead to additional charges being added to the outstanding debt, increasing the overall amount you owe.

5. Difficulty Obtaining Credit in the Future: 

Defaulting on a Bounce Back Loan can make it difficult for you to obtain credit in the future. Lenders will see you as a higher-risk borrower, and you may struggle to secure loans, credit cards, or mortgages.

It’s important to communicate with your lender if you’re facing financial difficulties and are unable to make your loan repayments. Many lenders may offer forbearance options or repayment plans to help you manage your debt more effectively.

What happens if I default on my Bounce Back Loan as a sole trader?

What happens if I default on my Bounce Back Loan as a sole trader

As a sole trader, defaulting on your Bounce Back Loan can have significant implications for both your business and personal finances. Here’s what may happen if you default on your Bounce Back Loan:

1. Personal Liability: 

As a sole trader, you are personally liable for any debts incurred by your business, including Bounce Back Loans. This means that if your business is unable to repay the loan, you may be personally responsible for settling the debt.

2. Legal Action: 

The lender may take legal action against you to recover the outstanding debt. This could involve initiating court proceedings and obtaining a County Court Judgment (CCJ) against you, which can further impact your credit rating and ability to secure credit in the future.

3. Loss of Reputation: 

Defaulting on a loan can tarnish your reputation as a borrower and may affect your relationships with lenders, suppliers, and other business partners.

4. Bankruptcy: 

In severe cases of defaulting on a Bounce Back Loan, particularly if you’re unable to negotiate alternative repayment arrangements with your lender, bankruptcy could become a possibility. 

Declaring bankruptcy as a sole trader means your assets, including personal possessions and property, may be liquidated to repay creditors, including the outstanding Bounce Back Loan.

5. Credit Score Impact: 

Defaulting on a Bounce Back Loan will negatively impact your credit score. A default stays on your credit file for six years, making it challenging to obtain credit or loans in the future, both for your business and personal needs.

Am I Personally Liable For Default On My Bounce Back Loan?

Unlike some other government loan schemes, Bounce Back Loans (BBLs) didn’t require a personal guarantee. This means defaulting typically won’t lead to serious consequences like personal bankruptcy for directors.

However, there are some exceptions where you might be held personally liable:

  • Misusing the Funds: If you used the BBL to pay off another loan that had a personal guarantee attached, or if you took out the BBL knowing your company was already insolvent, this could be seen as fraudulent activity.
  • Director Misconduct: Engaging in “wrongful trading,” which means continuing to trade while knowing the company is insolvent, or misusing company funds for personal gain, could lead to personal liability for you.
  • Record-Keeping Woes: If your company goes bust and can’t repay the loan because you haven’t kept proper financial records, you as a director could face legal action for negligence.
  • Preferential Payments: Prioritising payments to creditors you’re personally connected to (like friends or family) over repaying the BBL could be challenged by a liquidator, potentially leading to personal liability.

So, while BBLs seem pretty easygoing, you’ve got to watch your step. Make sure you’re using the money right and playing by the rules, or you might find yourself in some serious trouble down the road.

Defaulting Your Business on the Bounce Back Loan: Here are the Options To Consider! 

Navigating a Bounce Back Loan default can be a daunting challenge for any business owner. However, understanding the available options and taking proactive steps can significantly alleviate financial strain and pave the way for recovery. 

Here are some well-proven strategies to consider when you face a Bounce Back Loan default:

1. Open Communication with Lender

The first step is to engage in open and transparent communication with your lender. Inform them about your financial challenges and discuss potential solutions together.

2. Negotiating Revised Loan Terms 

Explore the possibility of renegotiating the terms of the loan with your lender. This could involve adjusting repayment schedules, interest rates, or other loan conditions.

3. Implementing a Structured Repayment Plan

Work with your lender to establish a structured repayment plan or forbearance agreement. These arrangements can help you manage your debt by spreading payments over a longer period or temporarily reducing payment amounts.

4. Debt Restructuring or Consolidation

Consider consolidating your debts or restructuring your finances to make repayments more manageable. Debt consolidation involves combining multiple debts into a single loan with more favourable terms.

5. Exploring Insolvency Options

As a last resort, explore insolvency options such as administration or liquidation. These procedures can help restructure your debts or wind down your business in a controlled manner, but they should be approached with caution and professional guidance.

Is it Possible  To Close A company after defaulting on a Bounce Back Loan?

Yes, it is possible to close a company after defaulting on a Bounce Back Loan.

Defaulting on a Bounce Back Loan doesn’t necessarily prevent you from closing your company, but it does complicate the situation. If your company is unable to repay its debts, including the Bounce Back Loan, it may become insolvent. 

In such cases, you might consider voluntary liquidation, where the company’s assets are sold to repay creditors, including the Bounce Back Loan lender.

However, it’s crucial to follow proper legal procedures when closing a company, especially in the context of insolvency. This typically involves appointing a licensed insolvency practitioner to oversee the liquidation process and ensure that creditors are treated fairly.

It’s also important to note that closing a company doesn’t necessarily absolve you of personal liability for the Bounce Back Loan if you provided a personal guarantee or engaged in wrongful trading or fraudulent activities. In some cases, creditors may pursue personal assets to recover outstanding debts.

Before deciding to close your company, it’s advisable to seek professional advice from a qualified insolvency practitioner or financial advisor. 

Exploring Effective Options To Avoid Defaulting on My Bounce Back Loan?

Avoiding default on your Bounce Back Loan is crucial for maintaining financial stability and protecting your business. Here are some proactive steps you can take:

1. Monitor Cash Flow: 

Keep a close eye on your business’s cash flow to ensure you have sufficient funds to meet your loan obligations. Implement effective cash flow management strategies to minimise the risk of default.

2. Utilise the Pay As You Grow (PAYG) Scheme:

Take advantage of the flexibility offered by the PAYG scheme, which allows you to adjust your repayment terms to better suit your financial circumstances. Options include extending the loan term, making interest-only payments, or taking repayment holidays.

3. Communicate with Your Lender: 

Establish open and transparent communication channels with your lender. If you anticipate difficulties in making repayments, proactively reach out to discuss potential alternatives or repayment plans. Lenders may be more inclined to work with you if they are aware of your situation and efforts to address it.

4. Monitor and Review Financial Performance: 

Regularly review your business’s financial performance and projections to identify potential issues early on. This allows you to take corrective action promptly and avoid defaulting on your loan.

5. Seek Professional Advice: 

Last but not least, consider seeking advice from financial advisors or business consultants experienced in debt management and financial restructuring. 

Seek Professional Guidance With Vanguard Insolvency! 

When facing challenges with your Bounce Back Loan, seeking professional guidance with Vanguard Insolvency can be your beacon of support. 

With our expertise in insolvency matters and debt management, Vanguard Insolvency offers tailored advice and solutions to help you sidestep default and mitigate financial risks. 

We’ll assess your financial situation, explore alternative repayment options, and guide you through insolvency procedures if necessary. 

With Vanguard Insolvency by your side, you gain the knowledge and support needed to safeguard your business’s financial health and navigate through challenging times effectively.

Senior Partner at Vanguard Insolvency Practitioners | Website | + posts

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.