Sole Trader Bounce back loan & mortgage bbls

goldie2506

Hello, please can you anyone advise if the BBL will show on my personal file as being an outstanding debt for £x as I am applying for a mortgage in the next 6 months. The payments will be going through my business as I keep my finances separately - but im not a ltd company. Secondly, I have an employed job also so I dont need to use my self employed income for affordability. 

bexmar_2

I was advised by Santander that any outstanding loan amount at point of mortgage application will be taken off the affordability calculation. So it would reduce the amount they would lend you. 

Grumpy_chap

The bounce back loan is available until beginning November.  If your cashflow permits, could you get the mortgage and house purchase done and then consider BBSL once the former is in the bag?

moatfarm

I am currently a sole trader and considering switching to a Ltd Company before getting the BBL as I want to get a mortgage in the next two years. If you own a Ltd Company, would any outstanding loan amount at point of mortgage application, be taken off the affordability calculation? I know technically you and the company are separate entities however I’m not sure how mortgage companies would view the debt or if they would even take it into account with a Ltd Company?

noitsnotme

moatfarm said:

I am currently a sole trader and considering switching to a Ltd Company before getting the BBL as I want to get a mortgage in the next two years. If you own a Ltd Company, would any outstanding loan amount at point of mortgage application, be taken off the affordability calculation? I know technically you and the company are separate entities however I’m not sure how mortgage companies would view the debt or if they would even take it into account with a Ltd Company?

I don’t think the new limited company will qualify for a BBL as it didn’t exist on 1st March 2000 and it would have no trading history or turnover.

The limited company would be a totally separate legal entity to you as a sole trader so your previous sole trader history won’t count towards the eligibility of the Ltd company for a BBL.

moatfarm

Ok thanks. If I was to take the loan out continuing as a sole trader and decided to change to a Ltd Company in a years time, would it become complicated with the BBL tied to me as a sole trader? Or as it would be a separate entity it wouldn’t matter?

noitsnotme

moatfarm said:

Ok thanks. If I was to take the loan out continuing as a sole trader and decided to change to a Ltd Company in a years time, would it become complicated with the BBL tied to me as a sole trader? Or as it would be a separate entity it wouldn’t matter?

The loan would be a legal agreement between you as a sole trader and the bank.  I'm pretty sure that creating a new legal entity in the form of a limited company wouldn't change that relationship for the loan between you as a sole trader and the bank.

It's an interesting point as if you do go down the ltd company route then your future profits would be separate to you as an individual but you as the individual would still be committed to paying off the loan.  I guess you would have to cover the loan payments from the wages and dividends you draw from the ltd company.  Make sure that you do ask an accountant though for a definitive answer.

Jeremy535897

Given the length of the loan, a question to ask the accountant is how you would get a tax deduction for the interest on the loan, if the loan is in your name but there is no trade in your name after forming the limited company.

Grumpy_chap

My memory may be playing tricks on me, but I am sure I read at some point that there was "something" within the BBLS rules that allows Bob the builder to become Bob The Builder Limited and port trading history.  That may have been in the context of meeting the trading date for eligibility criteria, but it is logical the rules would also provide for porting the debt in a similar manner.  Something to ask your Accountant.

Jeremy535897

You might be remembering this thread:
https://forums.moneysavingexpert.com/discussion/6148443/changing-from-a-sole-trader-to-ltd-after-receiving-bbl

Not sure it helps though. Maybe it was this:
Q. Is there a date restriction on limited companies? I switched from sole trader to limited company on 9 March. I'm basically stuck in the middle of everything. A. "If you can verify that you were a sole trader before 1 March and show that your business is essentially the same as the one being carried out then, you will be able to apply."  
From https://www.moneysavingexpert.com/news/2020/05/small-business-boost-as-bounce-back-loans-launched/ Still not the point though.

The tax deduction for interest is an issue.

Grumpy_chap

Jeremy535897 said:

Maybe it was this:
Q. Is there a date restriction on limited companies? I switched from sole trader to limited company on 9 March. I'm basically stuck in the middle of everything. A. "If you can verify that you were a sole trader before 1 March and show that your business is essentially the same as the one being carried out then, you will be able to apply."  
From https://www.moneysavingexpert.com/news/2020/05/small-business-boost-as-bounce-back-loans-launched/ Still not the point though.

The tax deduction for interest is an issue.

Yes, I think it was that, or something very similar, that I remember.

You are correct, it does not directly help in this situation.  However, it is reasonable that the rules would permit this type of change and for the arrangement to port into the new business structure.  Given the long time-scale that the BBLS can last now, 6 (or even 10) years, it is likely there will be a number of businesses that expand and naturally evolve their corporate structure.  Surely, it is in the Government's interest that Bob the builder sole-trader grows the business to Bob The Big Builder Limited and then Bob The Giant Construction International Mega Corporation PLC.  We would not want that growth to be stunted because Bob the builder could not make the first bounce up.

For the tax issue on interest, as this is a business loan and consumer rules do not apply, can Bob the individual lend the money to Bob The Builder Limited and charge the same interest to the business as incurred in repaying the BBLS?