If you find that you’re unable to repay a Coronavirus Business Interruption Loan Scheme (CBILS) loan, there are several options available, such as renegotiating terms with the lender, refinancing, or entering into a formal arrangement like an insolvency procedure.
This article aims to provide a comprehensive overview of the avenues open to businesses facing difficulties in repaying a CBILS loan. It will cover the practical steps to consider, legal implications, and financial consequences, thus enabling business owners to make informed decisions.
What is the Coronavirus Business Interruption Loan Scheme (CBILS)
The Coronavirus Business Interruption Loan Scheme, aimed at SMEs, offered to fund up to £5 million and was available for a 6 year term. A growing number of businesses now have to start covering the monthly repayment, after the first 12 months of the loan were allowed as a payment holiday by the lender.
It closed on the 31st March 2021
What Happen if My Limited Company Can’t Repay a CBILS Loan?
If your limited company is unable to fulfil its obligations to repay a CBILS loan, the following outcomes may occur:
Initially, your lender will engage in debt recovery activities. This could involve establishing a new repayment schedule, pursuing overdue payments, or taking legal action against your company.
If the debt remains unpaid, the lender may petition for compulsory liquidationof your company as a means of debt recovery. In such a case, the company’s assets—ranging from inventory and equipment to business premises—could be liquidated to repay the outstanding loan. Importantly, this liquidation can occur without your consent as a director.
If the liquidation of assets does not cover the entire debt, you may become personally liable for the remainder if you provided a personal guarantee for the loan.
It is crucial to note that the government’s guarantee for CBILS loans is extended to lenders, not borrowers. Therefore, should your company default on the loan, the government will not intervene on your behalf.
If you are struggling to repay a CBILS loan, it is important to seek professional advice as soon as possible. An accountant or insolvency practitioner such as ourselves can help you assess your financial situation and advise you on the best course of action.
What are Our Options if We Can’t Pay Our CBILS Loan?
If you are a director of a company that is struggling to repay a CBILS loan, there are a number of steps you can take to try and resolve the situation.
Contact your lender immediately. The sooner you contact your lender, the more likely they are to be able to help you. Be honest with them about your financial situation and explain why you are struggling to repay the loan.
Seek professional advice. An accountant or insolvency practitioner can help you to assess your financial situation and advise you on the best course of action.
Consider your options. There are a number of options available to you, depending on your specific circumstances. These include:
Applying for a Company Voluntary Arrangement (CVA). A CVA is a formal insolvency procedure that allows you to renegotiate your debts with your creditors. This may be a good option if you have a viable business but are struggling with temporary cash flow problems.
Considering Creditors’ Voluntary Liquidation (CVL). CVL is a formal insolvency procedure that involves winding up your company and distributing its assets to your creditors. This is usually a last resort, but it may be the best option if your business is no longer viable.
Seeking further funding. If you are struggling to meet your financial commitments, you may be able to secure additional funding from a bank or other lender.
Consider selling assets. If your company has assets that are not essential to its operation, you may be able to sell them to raise cash to repay your loan.
Negotiating with your creditors. If you are struggling to repay your loan, you may be able to negotiate with your creditors to reduce the amount you owe or to extend the repayment terms.
Take action. Once you have decided on the best course of action, it is important to take action as soon as possible. The longer you wait, the more difficult it may become to resolve the situation.
Take Advice on Dealing with CBILS Loan Repayment Problems
Directors of companies struggling to repay CBILS loans should seek professional advice from a licensed insolvency practitioner such as ourselves as soon as possible.
Be proactive and transparent with your lender. The sooner you contact your lender and the more information you can provide, the better they will be able to understand your situation and help you find a solution.
Be realistic about your options. It is important to be realistic about the financial position of your company and the likelihood of being able to repay the loan in full.
Seek professional advice. An accountant or insolvency practitioner can provide you with impartial advice and help you to make the best decision for your company.
Will I Be Personally Liable If a CBILS Loan Can’t Be Repaid?
Personal liability for a CBILS loan depends on the loan amount and the presence of a personal guarantee.
For Loans up to £250,000:
Personal guarantees were not mandated.
In cases where a company can not repay such a loan, directors are therefore not personally liable.
It’s worth noting that the government-backed guarantee covered 80% of the loan, leaving the lender to potentially absorb the remaining 20%.
For Loans Exceeding £250,000:
Lenders generally required a personal guarantee from the directors.
Failure to repay under these circumstances could have resulted in personal liability for up to 20% of the remaining loan balance.
Importantly, a director’s primary residence was not permissible as security for the personal guarantee.
Can I Dissolve my Company if I Can’t Repay a CBILS Loan?
A limited company can only be dissolved by its directors if it has paid off all creditors
[1]GOV.UK “Closing a Limited Company. So, if the CBILS loan, and indeed other debts are owing, then a formal liquidation is necessary. It is important that directors avoid compulsory liquidation if at all possible. Instead, a Creditors’ Voluntary Liquidation gives them more control, should be less costly, and puts them in a better position if they wish to launch another business.
Be aware too that if a director dissolves their business while it is insolvent, they could face investigation by the Insolvency Service and possible prosecution, including disqualification from acting as a director.
There will be many UK businesses that are finding it hard to repay their CBILS loans – but each situation is different. If you are uncertain about what the most appropriate action to take is, be sure to take tailored advice for your particular circumstances.
References
The primary sources for this article are listed below, including the relevant laws and Acts which provide their legal basis.
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