How to invest my bounce back loan?

johndun20

Hi folks, 

I've been considering what to do with my £33k Covid bounce back loan - I was about to pay it back in full then realised i'll never get a chance to borrow such cheap debt at 2.5% (the loan term is over 6 years) Payments are due from March 2022 and I have the option to do the following - 

- Extend the loan to 10 years and pay back £370 per mouth (total cost £36,746)
- Take a 6 month capital repayment holiday then monthly payments of £679 (total cost 35,303.13)

My aim would be to invest over the long term in Scottish Mortgage or perhaps a portion in Tesla. I would probably withhold the 1 years repayment in cash and invest the rest.  

Here's my situation - 

37 year old, self employed, 141k left on a mortgage (2.83%, 20 years left), 77k in S&S ISA, 24k in SIPP, 10k Crypto.

Curious if anyone has any wisdom if this seems like a sensible route?

Thanks in advance!

Albermarle

If you do invest the money it is risky to have it concentrated in just a couple of investments . Funds with a much wider global range would be less risky.
Also  in the longer term  £24K in a pension at age 37 , is too low.

Brie

I'd be dropping it into the mortgage.  Not much of a gain but nice and easily available  unlike what might happen with Crypto.  Even a SIPP might not be accessed when the money needs to go back.

Grumpy_chap

johndun20 said:

Hi folks, 

I've been considering what to do with my £33k Covid bounce back loan - I was about to pay it back in full then realised i'll never get a chance to borrow such cheap debt at 2.5% (the loan term is over 6 years) Payments are due from March 2022 and I have the option to do the following - 

- Extend the loan to 10 years and pay back £370 per mouth (total cost £36,746)
- Take a 6 month capital repayment holiday then monthly payments of £679 (total cost 35,303.13)

My aim would be to invest over the long term in Scottish Mortgage or perhaps a portion in Tesla. I would probably withhold the 1 years repayment in cash and invest the rest.  

Here's my situation - 

37 year old, self employed, 141k left on a mortgage (2.83%, 20 years left), 77k in S&S ISA, 24k in SIPP, 10k Crypto.

Curious if anyone has any wisdom if this seems like a sensible route?

Thanks in advance!

Whatever you do, be careful not to fall foul of the scheme rules:
https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-schemes/bounce-back-loans/faqs-for-small-businesses/

I'd particularly have consideration for the following:
"What can I use the loan for?
The business must confirm to the lender that the loan will only be used to provide an economic benefit to the business, for example providing working capital, and not for personal purposes."

You may also wish to consider how a lender would view a business that needed to defer or extend (or both) the BBLS finance and whether that would impact future ability to borrow as either a business or the proprietor as an individual.  

Finally, what secure deposit can you identify that generates a meaningfully better return after all fees and taxes that may be applicable?

theGrinch

Check your T&Cs as you might be contravening those of the BBL.

What can I use the loan for?
The business must confirm to the lender that the loan will only be used to provide an economic benefit to the business, for example providing working capital, and not for personal purposes.

Malchester

Is it not ethically / morally wrong that taxpayers  are subsidising making money from these loans instead of them being used for the genuine purpose they were intended for? If the loan is to be invested it wasn't needed. HMRC / govt would be interested I am sure

Albermarle

Malchester said:

Is it not ethically / morally wrong that taxpayers  are subsidising making money from these loans instead of them being used for the genuine purpose they were intended for? If the loan is to be invested it wasn't needed. HMRC / govt would be interested I am sure

Although I suppose it is not as morally wrong as fraudulently obtaining the loan in the first place , with no intention of paying it back. As happened in large numbers .

Alistair31

If your business doesn’t need it then pay it back now IMO. 

steampowered

It is not true that you'll "never get a chance to borrow such cheap debt". I am paying 0.99% on my mortgage.

It makes perfect logical sense to take on debt at 2.5% to invest, given that average returns on the stock markets have historically been 7-8% per year.

However, investing using debt is much riskier than investing using cash. If you are going to go down that route I would really suggest sticking with a stock market tracker. Not things like Crypto or Tesla where there is a good chance you'll end up losing most of it, while still having to repay the debt.

Alexland

johndun20 said:

Curious if anyone has any wisdom if this seems like a sensible route?

The wise and sensible thing, if your business don't need the money,  is to just pay it back rather than take unnecessary and high risks using concentrated or speculative assets with money that will eventually need to be repaid.

Cus

A business could always use the money. Invest it in your business.