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What happens if my company can’t repay CBILS loan?

Posted on: Tuesday 19th January, 2021

What happens if my company can’t repay CBILS loan?

The government’s Coronavirus Business Interruption Loan Scheme (CBILS) has bolstered company finances and provided much-needed support for cash flow during the Covid-19 pandemic.

With many businesses still experiencing financial distress, however, what happens if your company can’t repay a CBILS loan? Can it be written off at some stage, or are you personally liable for the outstanding amount?

What are the risks when your company can’t repay a CBILS loan?

If your company is carrying serious debt and can’t afford to repay, your risk of personal liability for a CBILS loan depends on whether you’ve provided a personal guarantee. When the government first introduced the loan scheme, it was announced that CBILS loans under £250,000 wouldn’t require a personal guarantee.

Some lenders, however, did demand them from directors. If your business was in desperate financial circumstances, you may have provided a guarantee to personally repay the loan in the event of default by your company.

If you took a CBILS loan over £250,000 the lender may well have demanded a personal guarantee, but the government did offer a little protection in this regard:

  • The lender is unable to use your Principle Private Residence (PPR) as security
  • Up to 20% only of the outstanding CBILS loan (after the proceeds of asset sale) can be recovered by the lender

There are other instances where personal liability could become a factor if your company is unable to repay a CBILS loan, and these include where director misconduct or wrongdoing has taken place in some form.

So what can you do if your company can’t keep up repayments on a CBILS loan?

Redundancy claims are a very professional company, Caroline who is dealing with our case is friendly, compassionate and very clear in explaining everything during this difficult time. The service we have received has been amazing, Thank you.
Tina Hill
Tina Hill

Obtaining additional finance

You may be eligible for further finance that would boost cash flow and help you pay your CBILS loan. Alternative funding, such as invoice finance, can help businesses stay afloat until economic conditions improve, and potentially recover fully over the long-term.

Compared with a standard business loan this type of funding can be very flexible, providing either a cash lump sum or regular inputs of working capital that help you keep up with creditor payments and avoid official insolvency.

But what happens if your company can’t repay its CBILS loan, and needs to be liquidated?

Entering Creditors’ Voluntary Liquidation (CVL)

Creditors’ Voluntary Liquidation is a formal insolvency procedure that closes down a business with debt in an orderly manner. If your CBILS loan doesn’t have a personal guarantee attached, and no instances of misconduct come to light, it could be written off with other unsecured debt following liquidation.

When a business is liquidated, the office-holder carries out investigations as to whether directors could have contributed to its downfall by their actions – whether deliberately or inadvertently.

If you’re eligible, entering Creditors’ Voluntary Liquidation also offers you the opportunity to claim redundancy pay. This could help to pay for the professional fees involved, repay some of the debt, or support your personal finances as your company closes.

Professional support from Redundancy Claims UK

Redundancy Claims UK has extensive knowledge of the redundancy claims process for directors, and works closely with the Redundancy Payment Service (RPS). We’re also insolvency experts with over 40 years’ experience, and can provide further tailored advice if your company is struggling to repay a coronavirus business loan.

The area of personal guarantees is a complex one, but we can present the best options for yourself and other directors in these circumstances, as well as the company. Please contact one of our partner-led team to arrange a free, same-day consultation – we operate local offices throughout the country.

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