Finance

Understand What Happens If You Can’t Pay Back Your Bounce Back Loan!

Bounce Back Loan

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Has your business been going through some rocky paths due to the off-season or other situations? Has the ongoing COVID-19 pandemic left a bad impact on the financial health of your business? Worry no more!! Maybe it is time for your business to opt for bounce-back loans. Before diving deeper, let us learn more about it.

What is a bounce-back loan?

During the COVID-19 pandemic, the government launched bounce-back loans for small businesses to get access to emergency funds. The small business can use the bounce back loan amount to pay staff wages, help with rents and business rates, and address other monthly business costs or overheads like electricity bills. The businesses can also use the loan amount to refinance other business debts. Since the bounce-back loans are interest-free for 12 months, they relieve a considerable burden from the heads of business owners who were drowned due to the effects of the pandemic. 

Furthermore, the lenders readily offer the loan amount as they have government backing. Once the interest-free loan tenure is completed, there is an interest rate of 2.5 percent per year, and repayments can be stretched for up to 10 years. Are you wondering what happens if you can’t pay back your bounce-back loan? Keep reading through to resolve your queries!

What happens if businesses default on a bounce-back loan?

Since the borrowers do not provide any guarantee or collateral as a security for the loan amount, they are not liable to lose assets if they default loan amount. The lenders will normally chase the borrowers and may make the loan repayment terms flexible. This can include extending loan terms and much more.

Furthermore, defaulting on the loan amount can also lead to dissolving the company for recovering the loan amount. The process of dissolving the company is also accelerated if the business is still not performing as expected in the market even after getting the bounce-back loan. This simply signifies that the business strategies are not fit enough to survive among its competitors. 

Since the bounce-back loans are government-backed, the lenders also have the right to chase the government authorities if they fail to close the new deals with the borrowers. 

Can you liquify your company?

When a business is not performing well and unable to repay the bounce-back loan amount, it becomes impossible to gain back its productivity and revenue. In those cases, closing down the company or dissolving it seems the best possible solution. During the liquidation of the company, insolvency professionals sell the business assets to repay the lending companies. However, the lender must not expect to recover the full loan amount and must plan to pursue the government to refund the outstanding amount. 

Although the bounce back loan can help your small business in case of an urgent financial crisis due to the pandemic, it may also lead to company liquidation if the loan amount is not repaid timely. Now that you have understood what happens if you can’t pay back your bounce-back loan, it is essential to make mindful financial decisions for your business.

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