Should I repay my Bounce Back Loan (BBL) or Coronavirus Business Interruption Loan Scheme (CBILS)?

Companies and sole traders were able to apply for both a Bounce Back Loan (BBL) or Coronavirus Business Interruption Loan (CBILS) during the course of the pandemic and wherever possible, should always look to pay it back.

Your unpaid Bounce Back Loan is an unsecured debt, which can be included in an insolvency procedure. Similarly, if your company is insolvent and liquidated, an unpaid Bounce Back Loan would only be repaid after the company’s secured and preferential creditors. However, if the debt relating to a Bounce Back Loan remains at the end of the insolvency arrangement, that debt is written off.

What will happen if I don’t pay?

If you choose not to not repay your Bounce Back Loan, it will be classed the same as any other debt. Lenders can use enforcement action and collection activities, as well as looking to freeze bank accounts if payments are regularly not paid. This can lead to County Court Judgements (CCJS) and eventually Winding-up Petitions, where you could face compulsory liquidation.

What happens if I can’t afford to pay?

If you cannot repay a Bounce Back Loan 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 these are unable to be maintained, the indebted amount is treated the same as an unsecured debt.

If you’re self-employed and can’t repay back either of the loan schemes, there is no way of getting it written off.

Help for limited companies

If you are currently unable to pay the Bounce Back Loan monthly repayments, it does not mean the company is beyond rescue. There are rescue and recovery strategies that could help strengthen the cash position.

• Repaying in affordable instalments
  As a bounce back loan is an unsecured debt. Unsecured debts can be included in a Company Voluntary Arrangement (CVA); a formal repayment arrangement, allowing you to pay back your unsecured debts in one affordable monthly payment.
  More on Company Voluntary Arrangements

• Company restructuring
  If repaying in instalments isn’t feasible, you can put the company into administration. Doing so puts a licensed insolvency practitioner in charge of the company while they make the necessary changes to sell the company to a potential buyer. As with a CVA, creditor pressure is suspended for the administration’s duration
  More on Administrations

• Liqudiate the company
  If you can’t afford to pay your BBL or CIBLS loan and they are one of several debts you cannot afford, putting the company to bed through a Creditors Voluntary Liquidation (CVL) can put the company to bed. An insolvency practitioner, will close the company, realising all of its remaining assets, with the cash raised, being distributed amongst creditors. Although the company will cease to exist, it will write off any debts that the company has.
  More on Liquidation

Help for individuals

The CBILS was not available to sole traders or self-employed individuals, but if you can’t repay your BBL, there is no way of getting it automatically written off. As a BBL is classed as an unsecured debt, it can be entered into an Individual Voluntary Arrangement (IVA), which allows an individual to repay their debts in monthly instalments. An IVA typically lasts five years and once completed any remaining debts within the agreement can be written off.

• Repay in affordable monthly instalments
  An IVA is a formal repayment plan for self-employed sole traders and individuals who are struggling to repay their debts. If you have assets to protect such as a property, entering into an IVA will see them protected, whilst you are in the arrangement.
  More on Individual Voluntary Arrangemtns

If I don’t repay it will I be personally liable?

The government provides 100% security for a bounce back loan. This is hugely beneficial for companies that may not have been able to recover from the financial impacts of the pandemic and face liquidation. As long as the directors are not deemed to have committed wrongful/fraudulent trading, or used the or CBILS in an inappropriate manner, the liability for the debt will lie solely with the company itself.

In normal circumstances, directors won’t face any personal liability for the amount of their bounce back loan. A Liquidator could potentially pursue a director personally, if the bounce back loan has been used. For a CBILS, a lender took no form of personal guarantee for anything below £250,000, however, above that some lenders had discretion to take personal guarantees.

Sole traders and self-employed individuals don’t have protection of limited liability, so there is no separation between personal and business finances. If an individual therefore can’t pay their BBL or CBILS loan, they will be personally liable.

In summary

An unpaid BBL or CBILS should always be paid off where it can be. If you’re struggling to pay the loan, there are formal payments plans such as a CVA to help manage unsecured debts, into affordable monthly payments. If a company is insolvent and liquidated, the BBL or CBILS is classed as an unsecured debt and in the process of a liquidation, will be repaid after the company’s secured and preferential creditors.

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