What happens if I can’t pay a Bounce Back Loan or CBILS Loan

Liability to repay remains with the business that has taken out the loan unless it enters liquidation.

Many businesses face difficulty in repaying these loans due to ongoing cash flow problems.

In this blog post, we’ll explore the ins and outs of these loan schemes, and discuss “what happens if I can’t pay a bounce back loan scheme or CBILS loan scheme”

The implications of a loan scheme failing to repay them, and various strategies to help you navigate these tricky waters.

The Implications of Failing to Repay a Bounce Back Loan or CBILS Loan

Not being able to repay a Bounce Back Loan or CBILS Loan can have serious consequences. For loans exceeding £250,000, personal guarantees are mandatory, and directors could be exposed to significant financial risk.

Additionally, lenders may initiate legal proceedings if loan payments or other debts still due are not made.

However, the government has implemented additional protections for borrowers, including the prohibition of lenders taking personal guarantees for loans under £250,000 to assist businesses during this difficult period.

Personal Guarantees and Financial Risk

A personal guarantee is an agreement wherein the lender requires the company director to pay back all or an arranged amount of the loan in the event the company is unable to fulfil its obligation.

Company directors who provide personal guarantees are subject to significant personal financial risk should their business fail to meet its payment obligations.

It’s crucial to review the terms agreed upon when providing security or a personal guarantee for a CBILS loan.

The lender must comply with the government guidelines for the loan scheme. If not, you may be held personally liable for part of the loan.

The lender may attempt to call in the guarantee, and if you are unable to pay, they may take legal action to enforce it.

This could result in significant financial difficulty for you, as well as serious personal financial risk such as the loss of your company.

Legal Actions by Lenders

If a borrower defaults on a Bounce Back Loan, the lender will seek full repayment from the government, as the loan is secured by the government.

Nevertheless, the lender may still contact the borrower to explore repayment options.

On the other hand, if payment is not made for a CBILS loan, lenders may seek to enforce the loan through legal proceedings, especially if the loan terms require personal guarantees from the company directors.

Legal actions taken by lenders against company directors who provide personal guarantees can put their homes and other assets in jeopardy.

It is essential to understand the implications of providing personal guarantees and seek professional help if professional assessment-free advice is needed.

Understanding Bounce Back Loans and CBILS

The Bounce Back Loan Scheme (BBLS) and the Coronavirus Business Interruption Loan Scheme (CBILS) are government-backed loan schemes designed to provide financial support to businesses struggling during the pandemic.

The BBLS offers a maximum loan of £50,000 without requiring personal guarantees. CBILS, on the other hand, provides loans up to £5m.

CBILS loans up to £250,000 do not need personal guarantees.

This waiver applies exclusively to eligible businesses up for CBILS loans below this amount. However, many businesses still struggle to repay these loans due to slow or annual turnover and no improvement in cash flow.

It is crucial to be familiar with the repayment terms and conditions associated with these loans. Failing to do so may result in serious financial consequences.

For Bounce Back Loans, the Pay As You Grow terms offers a six-month payment pause, an extension of the finance period to ten years, and intermittent periods of six months during which only interest will be paid.

Businesses unable to repay a CBILS or Bounce Back Loan should assess their repayment options.

Despite the government’s efforts to provide financial support to businesses in these unprecedented circumstances, the reality is that many still face challenges in repaying these loans due to ongoing cash flow problems.

This could be attributed to a prolonged or non-existent improvement in business cash flow, making it difficult for businesses to meet their repayment obligations.

If you find yourself in a similar situation, don’t despair. There are various strategies and insolvency options available to help you manage your loan repayment difficulties.

Strategies for Managing Loan Repayment Difficulties

There are several strategies available to help manage loan repayment difficulties. You can consider seeking professional assistance, exploring alternative funding options, or engaging in insolvency procedures.

In the following subsections, we will discuss two of these strategies in detail: Company Voluntary Arrangements (CVAs) and Invoice Finance.

Company Voluntary Arrangement (CVA)

A Company Voluntary Arrangement (CVA) is a legally binding agreement between a company and its creditors that enables a portion of its debts to be repaid over an agreed period of time, generally 3-5 years, at a rate that is viable for the company.

The objective of a CVA is to permit a company to negotiate with unsecured creditors, generate liquidity while preserving the business as a going concern, and keep trading even though it is insolvent.

A CVA can provide coverage for unsecured debts, including CBILS or BBLS, and facilitate the establishment of manageable monthly repayments based on terms that are suitable for particular circumstances.

This can help businesses navigate business loan repayment difficulties so that struggling businesses continue trading.

Invoice Finance

Invoice finance is a flexible form of business financing that allows companies to borrow capital against their outstanding invoices, thereby providing them with expedited access to funds and improved cash flow.

Typically, the lender will advance a portion of the invoice amount to the business within 24 hours, and the remaining outstanding balance will be paid when the customer settles the invoice.

Invoice finance provides businesses with quick access to funds, allowing them to manage cash flow and pay for expenses without having to wait for customers to pay their invoices.

Additionally, it enables businesses to free up working capital that would otherwise be tied up in unpaid invoices.

However, it’s essential to be aware that invoice finance can be costly due to lender fees and the risk of customers failing to pay their invoices.

Insolvency Options for Businesses Unable to Repay Loans

If your business is unable to repay loans, you may need to consider the insolvency process as an option.

This process typically involves the liquidation of the company and the end of all its unsecured debt and business debts.

In the following subsections, we will discuss two insolvency options: Creditors’ Voluntary Liquidation (CVL) and Company Administration.

Creditors’ Voluntary Liquidation (CVL)

Creditors’ Voluntary Liquidation (CVL) is a process in which a company is liquidated and all unsecured business debts are settled.

The company’s directors must appoint company liquidation or an insolvency practitioner to manage the under-enter liquidation process.

The liquidator will then evaluate the company’s assets and liabilities, allocate the assets to the creditors in accordance with the law, and remove the company’s name from the Companies House register.

While CVL can be a viable option for businesses unable to repay their loans, it’s essential to consider other options as well, such as Company Voluntary Arrangement (CVA), Invoice Finance, Company Administration, and seeking professional assistance.

Company Administration

Company Administration is an insolvency option wherein administrators assume control of the company’s operations and attempt to secure a buyer for the business and its assets, with the aim of preserving jobs and maintaining the company’s operations.

The remaining balance of the CBILS loan is frozen and becomes a legally binding debt in the administration process. Appropriate security/personal guarantees will be enforced.

Administrative Dissolution is another process that has the same outcome as liquidation but may be more cost-effective.

It is conducted by the company’s directors, who must appoint an insolvency practitioner to manage the process for a limited company.

Support for Sole Traders and Individuals Struggling with Loan Repayments

Sole traders and individuals struggling with loan repayments are not without help. They can contact their lender to discuss their circumstances and seek advice from a certified and regulated insolvency practitioner.

An Individual Voluntary Agreement (IVA) can also be utilized, where interest-only payments or small repayments can be made to cover the loan.

The government has implemented additional measures to provide those who are having difficulty commencing repayment of their loan with additional flexibility.

Forbes Burton, for example, provides free advice to accredited lenders and confidential advice to limited companies on managing bounce-back loans with no obligation.

Seeking professional advice and assistance and exploring the available support options can help sole traders and individuals navigate their loan repayment difficulties and mitigate the financial impact on their personal lives.

Seeking Professional Assistance

The complex regulations related to insolvency, corporate loans, and individual guarantees can be difficult to comprehend and implement.

That’s why it is crucial to seek professional assistance as soon as possible if you are unable to repay your Bounce Back Loan.

A licensed insolvency practitioner can provide specialist advice tailored to your unique situation and help you navigate the various options available to manage your loan repayment difficulties.

Remember, timely intervention can make a significant difference in overcoming these challenges and securing your financial future.

Frequently Asked Questions

What happens if I Cannot pay my bounce-back loan?

If you are unable to pay back a bounce-back loan, it is important to contact the lender as soon as possible.

They will work with you to find an acceptable repayment plan that is suitable for your financial situation.

However, if repayments are not resumed, the bank or lender will escalate towards debt collection.

Will Cbils loans be written off?

It is unlikely that Coronavirus Business Interruption Loan Scheme (CBILS) loans will be written off as long as the borrower is still actively trading.

In the event of insolvency, there may be a chance to negotiate repayment terms or have the loan written off, but this is usually a last resort.

Will bounce-back loans be written off?

It is important to remember that bounce-back loans are not expected to be written off. With government-backed support, companies can focus on improving their overall financial situation.

What happens if I can’t pay my bounce-back loan sole trader?

If you can’t pay your bounce-back loan as a sole trader, you may become personally liable for the debt.

This means that your personal finances and business finances are no longer legally separate and the debt can be enforced against your personal assets if necessary.

It’s therefore important to think carefully before taking out any loans.

Information For Company Directors

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