Can’t repay a CBILS loan? What Happens?

Can’t repay a CBILS loan? What Happens?

The Coronavirus Business Interruption Loan Scheme (CBILS) was originally established by the Chancellor at the pandemic’s start. With this scheme, loans are 80% subsidised by the government. This article explains what to do if you cant repay a CBILS loan.

Some lenders demanded personal guarantees for CBILS loans of up to £250,000, though this wasn’t a requirement. This is an important factor when determining if your CBILS loan might be written off.

If you’ve given a PG to your lender, they could demand repayment if the company can’t meet its obligations. What are the consequences of this? Can anything be done to improve the financial state of your company?

What if your company cannot afford to repay a CBILS loan?

If your business is still operational, then it’s fully responsible for repaying the loan–not the government. Covid has inflicted much financial damage to many businesses, so you may find it difficult to repay your coronavirus business loan.

Loans from the Coronavirus Business Interruption Loan Scheme are unsecured, meaning that if the company has to be sold off through liquidation, it’s unlikely they will have enough money to cover the loan in full. However, if this is the case and the company declines to an extent where its only option is liquidation, It may be possible to write off the remainder of its debt.

Personal liability for a CBILS loan

In some cases, a director could become personally liable for a coronavirus loan if they provide a personal guarantee.

Personal guarantees and CBILS

The UK government has provided some measure of protection to company directors with personal guarantees for CBILS loans.

  • For loans over £250,000 a director’s Principal Private Residence could not be used as security
  • The lender can only recover 20 per cent of the outstanding amount via a personal guarantee after the proceeds of the sale of assets have been applied

Director misconduct

An investigation is launched anytime a company goes into liquidation, to determine why the business failed. If any type of misconduct is evident during this investigation—such as if the loan wasn’t used for the economic betterment of the business or there were discrepancies on the initial application form—the company director may be held liable.

What can you do if you’re struggling to repay your CBILS loan?

If your business is finding it difficult to repay its coronavirus-related loan, you may have various options available, including:

Alternative finance

One option to increase working capital for businesses with a strong sales ledger is to seek funding from an alternative financier, such as a factoring firm or invoice discounter. Other possible lenders include asset finance, who may be able loan your business large sums of money if it owns assets of considerable value.

Debt restructuring

Could another option work better for you? If so, a Company Voluntary Arrangement (CVA) might be the answer. With a CVA, your debts are reorganised to make monthly repayments more manageable. Under this arrangement, businesses have up to five years to trade their way out of difficulty. This type of arrangement is typically best suited for companies with temporary cash flow issues.

Company administration

If your company is struggling under severe creditor pressure, one possible solution is company administration. This will give you an eight-week break from creditors’ actions, including a winding-up petition.

For any questions you may have or specific advice on your CBILS loan, contact our expert team for financial support. Company Doctor are insolvency specialists and can provide the guidance you need in this situation. We offer free, same-day consultations.

Further Reading on Bounce Back Loans & CBILS

The Governments page on CBILS Loans here.

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