Can't pay a bounce back loan as a sole trader?

Am I personally liable for a sole trader bounce back loan?

Yes, you are personally liable for a bounce back loan taken as a sole trader, because the scheme rules said “the borrower remains 100% liable for the debt” (opens in a new tab) and GOV.UK says a sole trader is personally responsible for all of the debts of the business (opens in a new tab).

The government guarantee behind the scheme protects the lender. It covered the lender against the outstanding balance, capital and interest, but it never took the debt off the borrower.

The same rules stopped lenders taking a personal guarantee or taking recovery action over a borrower's personal assets, such as the main home or a personal vehicle. That limit applies to the lender's own recovery action. It does not change whose debt the loan is.

The loan sits with the rest of your sole trader debts, and it is dealt with alongside them.

What happens if a sole trader cannot repay a bounce back loan?

A sole trader who cannot repay a bounce back loan is personally liable for it, because the business is the sole trader. Under the scheme terms (opens in a new tab) the lender cannot take recovery action over your main home or main personal vehicle, but other personal assets may be at risk.

Those terms limit what the lender itself can do to recover the loan. They are separate from what happens in a bankruptcy, where a trustee deals with your property under the bankruptcy rules.

The scheme also built in ways to spread the cost. GOV.UK's guidance said lenders would offer to extend the loan to 10 years (opens in a new tab), to move to interest-only payments for 6 months (up to 3 times), or to pause repayments for 6 months once. If you have not used all of these, ask your lender what is still open to you before the account falls further behind.

If the loan is one of several debts you cannot keep up with, a payment break on one of them may only move the problem along. That is the point to look at the whole picture, including the formal options below.

Can an IVA or bankruptcy include a bounce back loan?

Yes, an IVA or bankruptcy can include a bounce back loan taken as a sole trader, because it is one of your personal debts: an approved IVA binds every creditor entitled to vote (opens in a new tab), and discharge from bankruptcy releases you from all the bankruptcy debts (opens in a new tab), with a few exceptions.

In an IVA the lender is one of your creditors and votes on the proposal with the others. The IVA starts if three quarters or more, by value, of the creditors who vote agree, and you then make one affordable monthly payment to the supervisor instead of paying each creditor. It can be cancelled if you do not keep up the payments.

In bankruptcy the loan is a bankruptcy debt like the others, and you are usually discharged one year after the bankruptcy starts (opens in a new tab).

One exception matters here. Discharge does not release a debt that was incurred by fraud. If there is any question over how a loan application was made, tell us at the start, because it changes the advice.

Can a debt relief order include a bounce back loan?

Yes, a debt relief order can include a bounce back loan taken as a sole trader if you meet its limits: GOV.UK lists loans (opens in a new tab) among the debts a DRO can include, and a bounce back loan is not one of the debts it says a DRO cannot include.

You qualify only if your debts are no more than £50,000, your spare income is £75 a month or less and your property is worth £2,000 or less. A DRO costs nothing and usually lasts 12 months, after which you no longer owe the debts it lists.

You apply through an approved debt adviser, not through us: NTF Financial Solutions does not provide debt relief orders. Read how a debt relief order works.

What if a limited company took the loan?

If a limited company took the bounce back loan, the company is liable for it, not the director personally, although a liquidator can pursue a director for misconduct such as misfeasance (opens in a new tab).

The scheme did not allow lenders to take a personal guarantee, so the lender could not have asked the director to guarantee that loan.

The company's options are company procedures, and our group's corporate practice deals with them. See bounce back loans taken by a limited company. NTF Corporate Solutions Limited is part of the NTF group and run by the same two practitioners, so the group benefits from any work it takes on.

A misfeasance claim can follow if company money was misapplied. Read when a director is personally liable for company debts for the other ways a company debt can reach you.

Can a bounce back loan be written off for a sole trader?

A bounce back loan is not written off for a sole trader just because the business stops; it can be dealt with alongside other debts in an IVA, bankruptcy or, if you meet its limits, a debt relief order.

The scheme rules kept the borrower 100% liable for the debt (opens in a new tab), and nothing in them cancels the loan when trading ends. In an IVA you pay what you can afford for the agreed term to a licensed insolvency practitioner acting as supervisor, and the lender is bound once three quarters or more, by value, of the creditors who vote approve. In bankruptcy the loan is one of the debts discharge usually releases after a year, unless it came from fraud.

Neither an IVA nor bankruptcy promises any set amount will be written off. Fees apply, both may affect your credit rating, and neither suits everyone.