I can’t afford to repay my Bounce Back or Coronavirus CBILS Loan
Despite the government’s attempts to minimise the coronavirus’ economic damage through support loans, many directors are concerned they won’t be able to repay their Bounce Back Loan Scheme (BBLS) or Coronavirus Business Interruption Loan Scheme (CBILS) loans.
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What happens if I can’t repay my Coronavirus Business Interruption or Bounce Back Loan?
If you cannot repay a Bounce Back or Coronavirus Business Interruption Loan, what happens can depend on the specific terms of your arrangement. Both loan schemes rely on monthly repayments, and if the company can’t afford to maintain them, the indebted amount is treated the same as an unsecured debt.
While BBLS and CBILS loans under £250,000 don’t require personal guarantees, some lenders have been known to implement personal guarantees on their loans. Signing a personal guarantee means you agree to repay the lender either all or a portion of the loan. The Company’s failure to repay can ‘crystalise’ the personal guarantee, and the lender could pursue you personally for the owed amount.
To find out if your loan has a personal guarantee, you should contact your lender.
Can I write off the Bounce Back Loan?
With the government guaranteeing Bounce Back Loans, it has meant no need for a personal guarantee to be given, however, this does not mean it can just be written off. The only time a company could write off a Bounce Back Loan, would be if that company undergoes a liquidation, with any outstanding balance in the BBL covered by the government.
What solutions are available?
Fortunately, if you fall behind on your Coronavirus Business Interruption Loan or Bounce Back Loan repayments, you can apply for other debt-relief options.
If your business is struggling with coronavirus-related debt, or you’re concerned about the repayments, speak to us before the situation becomes unmanageable. Our initial advisors can assess your situation, and our team of licensed insolvency practitioners have years of experience to set you and your company on the right path.
Help for limited companies
If your Bounce Back Loan repayments become unaffordable, the unpaid amount becomes an unsecured debt, and limited companies have several options to relieve it:
- Affordable monthly repayments
If your company would be profitable without the debt, monthly repayment arrangements called Company Voluntary Arrangements (CVA) cover unsecured debts like unpaid Bounce Back Loans. They also allow the company to trade while it repays its debt.
More on Company Voluntary Arrangements - A third-party takes control of the company
If more substantial restructuring is needed, you can explore a company administration, where we would take control of the company, restructuring it while making the necessary changes to sell it.
More on administration - Closing the company
Occasionally, the debts may be so severe that recovery isn’t an option. In which case, you can explore a Creditors Voluntary Liquidation (CVL), which will close the company through an orderly process.
More on liquidation
Help for for individuals
Sole trader businesses cannot apply for Coronavirus Business Interruption Loans, but can apply for Bounce Back Loans. If you find yourself unable to repay a Bounce Back Loan, Individual Voluntary Arrangements (IVA) are available for sole traders.
Pay As You Grow (PAYG)
All lenders are expected to offer their borrowers PAYG, and your lender should outline your policy’s specific repayment options. The PAYG scheme refers to the increased flexibility in repayment options for companies who’ve taken out a loan, via the Bounce Back Loan scheme.
- Businesses can choose to make interest-only payments for six months, which they can choose to do up to three times in the loan’s duration.
- Businesses can delay all payments for a further six months, or eighteen months after the original loan was taken out.
- Payments can be paused from the first instalment, rather than after six as was initially proposed.
Can I be held liable for my Coronavirus Business Interruption or Bounce Back Loan?
While CBILS doesn’t require a personal guarantee for loans under £250,000, you should check with your lender for any specific guarantees.
The lack of personal guarantees in a Bounce Back Loan means if the company undergoes an insolvency procedure, in normal circumstances, the debt is tied to the company and not the directors. However, if the insolvency practitioner (IP) finds the directors guilty of wrongful or fraudulent trading, or finds the loans’ funds being misused, the directors would become liable for the debt.
In summary
The Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS) are for businesses struggling with debt because of the coronavirus pandemic. If a business can’t afford to repay its Bounce Back Loan, it is treated as an unsecured debt. The directors aren’t liable for the unpaid Bounce Back Loan in insolvency unless the insolvency practitioner finds them guilty of fraudulent or wrongful trading. If you’re worried your business cannot repay its CBILS or BBLS loan, speak to our initial advisors for free, impartial advice tailored to your circumstances.
FAQs
What are Coronavirus Business Interruption Loans?
The Coronavirus Business Interruption Loan Scheme (CBILS) was one of the first support schemes set up for small and medium-sized businesses struggling with coronavirus-related debt. The loans are available for UK businesses with an annual turnover of less than £45 million, providing the business was viable before the pandemic and has been negatively affected as a result. Accredited lenders like high street banks and asset-based lenders provide the loans.
Initially, CBILS drew criticism, as accessing funds required a guarantee. The need for a guarantee has since been removed for businesses borrowing less than £250,000. Now the Government will guarantee 80% of the funds to the lender while paying interest for the first year.
What are Bounce Back Loans?
The Bounce Back Loan Scheme (BBLS) was created partially in response to criticism of CBILS. Many businesses found it difficult to obtain funding via CBILS due to its strict requirements and the length of time the process tended to take. Bounce Back Loans provide financial support for businesses affected by the coronavirus, and eligible businesses can borrow up to 25% of the company’s turnover, from £2,000 to £50,000.
Bounce Back Loans don’t require repayments for the first year, and are interest-free, with the Government guaranteeing the loan. However, after the first year, the responsibility of repaying Bounce Back Loans becomes the company’s. Interest is added after the initial 12 months; at a fixed rate of 2.5% for up to 10 years.
Have I used my Bounce Back Loan correctly?
Bounce Back Loans are meant to help businesses with working costs and make up for lack of takings due to the coronavirus.
They can be used for:
- Paying staff, suppliers, loans and running costs (utilities/rent).
- Marketing costs.
- Investment into new production machinery and equipment.
- Maintaining business cash flow.
- Supporting directors’ income.
- Paying dividends without a profitable balance sheet.
- Increasing employees’ salaries.
Will a coronavirus loan be written off in insolvency?
If your business becomes insolvent, your Bounce Back Loan becomes an unsecured debt. These debts can be included in various insolvency procedures such as CVAs, IVAs and CVLs.
With CBILS, depending on the amount you borrowed, the lender may have required collateral or personal guarantees. If your business becomes insolvent, you should expect those guarantees to be enforced.
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