Invest Bounce Back Loan For A Year?

Twointhebush

Small businesses are going to be eligible for a Bounce Back Loan:
"Small businesses struggling due to the Coronavirus can now apply for a new 100% state-backed loan worth up to £50,000, with no interest charged or repayments needed in the first 12 months."
What if a sole trader took out the maximum loan and invested it for a year in a high interest account or something like Premium Bonds, and paid it back before the interest kicks in? Would there be any drawbacks?

MovingForwards

Yeah, it's not for personal use but business needs.

Head over to the dedicated Corona sub-forum and have a read through all the questions asking the same thing.

george4064

Probably best to ask this in the Coronavirus Support Boards: https://forums.moneysavingexpert.com/categories/coronavirus-support-and-help

But if you want an answer from me, the loans are offered for business use only. So not only would you be breaking the law, you would be doing something very immoral as you may be preventing other businesses you genuinely need these loans to keep afloat.

kinger101

Twointhebush said:

Would there be any drawbacks?

Your friends and family thinking you're a [their preferred choice of expletive].  The government [aka taxpayer] has to borrow this money and pay for the interest on this loan.   

Aside from that, you have to confirm to the lender that the loan is being for working capital and not personal purposes.  Wing it if you want, but apart from refusing the loan, I expect there might me more long term consequences for your business if the lender thinks you're not being truthful when applying for loans.

SFindlay

Twointhebush said:

What if a sole trader took out the maximum loan and invested it for a year in a high interest account or something like Premium Bonds, and paid it back before the interest kicks in? Would there be any drawbacks?

I would suggest IF this imaginery sole trader was not bright enough to realise plastering their criminal intent all over a public forum which can be forensically recovered and used against them in a court case then they best not bother as they don't sound like a criminal mastermind that's going to make their fortune over the year!! 
HOWEVER they could tell us all where this mythical high interest account is that they plan to invest their fraudulently obtained business loan into so those with their own money to save know where to put it to make our fortunes over the next 12 months!?!?! 

steampowered

You would be in breach of the loan terms which provide that the loan must be used for the economic benefit of the business and not for personal purposes.

I'm not entirely sure what the consequences of breaching the loan term would be, but they are likely to involve payment of a hefty rate of default interest (0% interest free periods are usually withdrawn if there is a breach of the loan) and could potentially also involve criminal penalties.

There is no such thing as a "high interest" rate account at the moment anyway, and the effective interest rate on premium  bonds is 1.4%. The benefit you'd get from investing a bounceback loan at 1.4% is so tiny it's probably isn't worth the admin of setting it up.

Twointhebush

This is an Investment Forum, may I suggest that some of you relocate to the Moralising Corbynite forum....

This from martin Lewis (MSE Founder) himself:
"We've now had it officially CONFIRMED there's nowt in the loan rules stopping you using these loans to support your income (though there can be tax/regulation issues depending on your firm's structure). Of course it's far from ideal - these are loans, not grants - but it's an option. So I've worked with MSE Kit, Steve, Jo and Callum to rapidly put together our new Bounce Back Loans guide,  incl..."

blue_max_3

This occurred to me too, but then I though it might adversely effect my credit rating. I'm a director of a limited company and get nothing else! I would quite like a slice of the gravy train.

colsten

This will end in tears.

Aside from the legal and/or moral aspects of abusing the loans, there is the risk that those who cannot resist doing it will fall victim to scammers who are offering them huge interest rates but will, of course, just vanish with the money.

kinger101

Twointhebush said:

This is an Investment Forum, may I suggest that some of you relocate to the Moralising Corbynite forum....

This from martin Lewis (MSE Founder) himself:
"We've now had it officially CONFIRMED there's nowt in the loan rules stopping you using these loans to support your income (though there can be tax/regulation issues depending on your firm's structure). Of course it's far from ideal - these are loans, not grants - but it's an option. So I've worked with MSE Kit, Steve, Jo and Callum to rapidly put together our new Bounce Back Loans guide,  incl..."

Supporting income isn't the same as providing a cash pot for investment is it? Small business owners obviously need to eat, pay their mortgage etc.  

Your question simply asked whether there were any drawbacks.  I perceived being regarded in a negative light by one's peers as being such a drawback. But perhaps I'm a little thin-skinned.  As you're made of tougher stuff, perhaps rephrase your question so people can take account this when answering.

I'm not sure people not liking the state giving handouts to people who don't need it qualifies them as being Corbynites.

SFindlay

Twointhebush said:

This is an Investment Forum, may I suggest that some of you relocate to the Moralising Corbynite forum....

This from martin Lewis (MSE Founder) himself:
"We've now had it officially CONFIRMED there's nowt in the loan rules stopping you using these loans to support your income (though there can be tax/regulation issues depending on your firm's structure). Of course it's far from ideal - these are loans, not grants - but it's an option. So I've worked with MSE Kit, Steve, Jo and Callum to rapidly put together our new Bounce Back Loans guide,  incl..."

You asked the question so be man enough to accept the criticism!! 

But as I said in previous post let's play your game, what is this high interest account that's gonna make enough money to keep your business afloat?? Why cant you provide an answer to that when we have all taken the time to answer your question??