Is your small business through a rocky path related to finances? Are you exploring the different small business loan options available in the market? If yes, it is time for you to check out the terms of bounce-back loans if your business is facing a financial crisis due to COVID-19 pandemic.
The bounce-back loan is specifically offered to small businesses as a quick source of affordable funding options during the COVID-19 pandemic. Individuals who are wondering whether do you have to pay back the bounce-back loan or not shall be assured that they have to with some perks, of course. The prominent feature of government-backed bounce-back loans is that no interest is charged for the first 12 months. Furthermore, the businesses are not required to provide any asset as collateral for the security of the loan.
What can happen if you fail to repay the bounce-back loan amount?
As discussed earlier, defaulting on a bounce-back loan is not similar to defaulting on a secured loan, as the lenders have no security over any of the borrower’s assets. However, the government always advises the lenders to follow their usual protocols for chasing borrowers and recovering their loan amount. The chasing protocols can include threatening letters, court action, and potentially bailiffs if required.
Despite the government backing, most lenders are afraid to offer bounce-back loans. This is due to the increased volume of loan defaults; it might become impractical for them to chase all those borrowers. Even if the lenders offer bounce-back loans, they are well aware that the business is likely to reach a state of insolvency which can help recover the loan amount.
How are bounce-back loans hampered during liquidation?
When the business fails to repay the loan amount, it is essential for them to decide the best course of action. If there are no chances for the business to gain back its productivity and revenue, the only option left is to liquify the company. Closing down the company with debt enables the insolvency professional to sell the business assets and repay the lending companies. Therefore, during liquidation, the bounce-back loan is not secured against company assets. The lenders must not expect the loan to be recovered to the fullest, but they can pursue the government for repayment of government-backed bocce back loan repayment in full.
THE KEY TAKEAWAY
Now that your query regarding do you have to pay back the bounce back loan is resolved, it is essential to have a brief picture of everything discussed above. The bounce-back loans are offered to help small businesses that have been impacted financially since the onset of the COVID-19 pandemic. However, even after providing the desired funds to small businesses, they may not manage to revive from the losses, thus concerning the lenders. When the state of company liquidation arises, the company’s debts will be repaid from the sale of assets. Even if the lending companies do not recover the complete loan amount, they can chase the government for further financial aid and recovery.