could bounce back loans be used to pay personal credit cards at an higher rate or loans off

Hesel18

In theory could you use a bounce back loan to pay off personal loans or credit card balances which are charging an higher rate? if not how will the government know what those taking these loans are spending them where they say they should?

Grumpy_chap

The rules state "use the loan only to provide economic benefit to the business, and not for personal purposes", so that would mean you cannot just pay down personal credit card.

If the business has a loan at a higher rate, then that might be possible to pay down using the BBLS.

If the business has been funded by a Director's Loan, which in turn was funded on credit card or personal credit, then it might be possible to use the BBLS to repay the Director's Loan.  I assume that the Director would then be free to use those funds as the Director sees fit, including paying off their credit card I suppose.

Can I suggest tuning into the Martin Lewis programme on Thursday evening as he said in the programme last week that he would include some guidance on what the BBLS can and cannot be used for.

Undervalued

Grumpy_chap said:

The rules state "use the loan only to provide economic benefit to the business, and not for personal purposes", so that would mean you cannot just pay down personal credit card.

If the business has a loan at a higher rate, then that might be possible to pay down using the BBLS.

If the business has been funded by a Director's Loan, which in turn was funded on credit card or personal credit, then it might be possible to use the BBLS to repay the Director's Loan.  I assume that the Director would then be free to use those funds as the Director sees fit, including paying off their credit card I suppose.

Can I suggest tuning into the Martin Lewis programme on Thursday evening as he said in the programme last week that he would include some guidance on what the BBLS can and cannot be used for.

Although if you are a sole trader there is legally no separation between your private assets and your "business" ones. You are personally liable for any "business" debts so I wonder how that is policed?

If you trade under your own name you don't even have to have a separate bank account?

Obviously if you are a limited company, or a partnership or call your business Wacky Widgets or whatever it is different....

Percy1983

I am thinking this, as a sole trader I have purchased for my business on a personal credit card in the past and started with my own money etc. There is little separation between me and my business as is the way as self employed.

MarkJones4

Technically no. However, any payment would need to be seen as a 'draw' so it's taxable. Nothing to say you cannot pay yourself out of the loan money. But if you pay a personal debt direct from your business acc you are storing up trouble. 

Hesel18

I am a sole trader, any difference?

Hesel18

seeing as I am liable for the debt anyway, why can't I do what I like with it, I will still owe the money if I spend it on new equipment or rent for the business, or if I pay off my existing personal loan at an higher interest rate.

Hesel18

I have a small shop, when the lockdown ends it will almost be unworkable due to the size of my premises with all the social distancing rules, to make a decent living will be nigh on impossible. My thinking is,take the bounce back loan at very low interest, pay off my personal loan and the credit cards and try and find a job, if there will be any after all this, that way I will still have the same amount of credit outstanding, but at a much lower rate than I am paying now, then pay the BBL off as I earn.
I will still pay off the debt I am liable for ( I am not trying to take the money then try and not pay it back), Is there any law to stop me doing this, just because the Government says it should be spent on the Business?
Can they actually dictate what I can and cant do with a debt I will have to pay back?
Can they enforce it?

Hesel18

This is from money saving expert advice on BBL and is from Martins Analysis:
Sole traders / business owners: You can take cash from the business, quite simply because you are the business. And taking the money doesn’t trigger any tax, because you pay that based on profit not withdrawals. Then again, of course, as this loan is your loan, you’re liable to repay it.
seems I could pay off my existing debt and replace it with the BBL at the lower rate.
Any thoughts?

Sara3365

I'm in a doubly difficult position as my ltd company has already been severely impacted by Brexit over the previous 2 years and the CV-19 feels like the last straw. The BBL questionnaire stipulates your business must not be "an undertaking in difficulty" and I was already running at a loss. I feel like I've been shafted twice! Can anyone help with a chink of light?

Grumpy_chap

There is a very specific definition for "an undertaking in difficulty", so simply running at a loss last year may not, of itself, make your Ltd Co "an undertaking in difficulty."  As per the following link to the FAQ:
https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-schemes/bounce-back-loans/faqs-for-small-businesses/#f23
I have to be honest, I find some of the terms under the FAQ for this a bit confusing and would need advice to understand them.

That said, if you were concerned about the forward viability of the business in any case, is it wise to take on additional borrowing?  It will need to be paid back in the future and I am sure the Government under-writing will not just be an easy option for the bank if you (your Ltd Co) defaults, no doubt there will be pursuit of the debt from your business first.