What if I Can't Pay Back My CBILS Loan

Directors may worry that they may not be able to pay back CBILS loans that have been granted to their companies during the pandemic. We discuss that here. But, first of all it is important to know what the loan was intended for and the conditions attached, so we begin with a loan overview.

Coronavirus Business Interruption Loan Scheme (CBILS):

This scheme provided facilities of up to £5m for small to medium enterprises who experienced cashflow issues as a result of the pandemic. Through the Coronavirus Large Business Interruption Loan Scheme which followed the initial CBILS, up to £50m is offered (£200m as of 26 May) for firms with revenues between £45m and £500m.

CBILS were available for most business finance products such as;

• term loans,
• overdrafts,
• invoice finance
• asset finance.

The scheme provided the lender with a government-backed guarantee potentially enabling a ‘no’ credit decision from a lender to become a ‘yes’.

CBILS: Key Features

• Up to £5m facility repayable over a period of up to 6 years (SMES) or £50m (£200m as of 26 May) for larger businesses
• 80% guarantee to the Lender
• Interest and fees paid by Government for 12 months
• Overdrafts and Invoice Finance for 3 years
• Security: At the discretion of the lender, the scheme may be used for unsecured lending for facilities of £250,000 and under. For facilities above £250,000, the lender must establish a lack or absence of security prior to businesses using CBILS. If the lender can offer finance on normal commercial terms without the need to make use of the scheme, they will do so.
• When borrowing up to £250,000, a personal guarantee is not required
• Companies taking out these loans are 100% liable for the debt and there are no restrictions on the interest rates banks charge
• A term extension beyond 6 years, up to a maximum of 10 years for existing CBILS facilities can be made in connection with the provision of forbearance relating to the facility, at the discretion of the lender if within its usual forbearance policies.

Who was eligible for this loan?

Smaller businesses from all sectors could apply for the full amount of the facility. To be eligible for a facility under CBILS, the SME must:

• Be UK-based in its business activity, with annual turnover of up to £45m (or up to £500m to be eligible for the Coronavirus Larger Business Interruption Loan Scheme)
• Have a borrowing proposal which, were it not for the current pandemic, would be considered viable by the lender, and for which the lender believes the provision of finance will enable the business to trade out of any short-to-medium term difficulty.
• Previously businesses which were classed as ‘undertakings in difficulty’ were unable to access CBILS because of EU rules. Now businesses in this category and which have fewer than 50 employees and a turnover of less than £9 million can apply to CBILS.

Applications for CBILS loans closed on the 31st March 2021.  They have been superseded by the Recovery Loan Scheme

What could the company use the CBILS loans for?

You could have used the loans to pay staff wages (directors included). It could also have been used to help with rents and business rates, any monthly business costs or overheads such as phone and electricity bills. Finally, directors may have wished to use it to refinance other business debts to lower the interest costs related.

CBILS loans could not be used to pay dividends or to pay into a personal savings account to accrue interest. It could not be used for any purposes other than those business related. To do so would not be “acting reasonably and responsibly” and you could be made personally liable if the company enters into voluntary or compulsory liquidation.

What if we KNOW we can’t pay back CBILS loans?

Advice from us, as a company rescue firm, is this: DO NOT run down the CBILS cash until there is nothing left to pay creditors, wages or to cover the cost of a liquidation.  Same applies for Bounce Back Loans as well.

We are aware that may non-viable companies have taken out these loans. In fact, the government loosened the criteria for these loans so that companies marked by lenders as “undertakings in difficulty” could apply for these loans. So ultimately, if your company is unable to pay back this emergency loan, it is not too much of a problem, if you have acted “reasonably and responsibly as a company director”.

Remember that if you are unable to pay back this emergency loan, then you risk your credit rating being affected at the bank which can limit your attractiveness to future lenders.

CBILS loans in excess of £250,000 are often backed up by directors’ personal guarantees so unfortunately there will not be a way out of that. However any guarantee was not to include the directors principle residence and some banks limited the PG to £50k.  On the other hand, for loans below the value of £250,000 you may be held personally liable and the ‘’veil of incorporation’’ may be lifted on the limited company if you have acted unreasonably.

If you are in a hole then the usual advice is to stop digging! Do not run away from the issue nor make it worse. Face reality and assess the likelihood…your business may well be insolvent. Check out our pages, complete the insolvency tests and read our warning signs – do these apply or sound familiar? The most important thing if you find yourself in this situation is to ACT. Especially given that the factors involved here, personal guarantees, insolvency, liabilities. So, reach out and get professional assistance today!

Can I Just Dissolve The Company?

No you cannot!  The Insolvency Service is to be given powers to investigate directors of companies that have been dissolved as set out in the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill. This will close a legal loophole and act as a strong deterrent against the misuse of the dissolution process.

Extension of the power to investigate also includes the relevant sanctions such as disqualification from acting as a company director for up to 15 years. These powers will be exercised by the Insolvency Service on behalf of the Business Secretary.

The measures included in the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill are retrospective and will enable the Insolvency Service to also tackle Directors who have inappropriately wound-up companies that have benefited from Bounce Back Loans.

What are the options?

Depending on your specific situation, you have several possibilities. This includes:

​​Time to pay arrangements

If you are having trouble repaying your debt, you may be able to negotiate with your creditors to reduce the amount owed or to prolong the repayment period.  Although CBILS loans tend to be over a longer period 4 years then you won’t be able to extend this period easily but you could ask other creditors to extend terms.

Applying for a Company Voluntary Arrangement (CVA)

A CVA is an insolvency procedure which allow unsecured debts to be partially written off and paid over a period of time. This may be a  alternative if you have a viable business but are experiencing temporary cash flow issues.

Creditors’ Voluntary Liquidation (CVL)

​Creditors’ Voluntary Liquidation is a formal insolvency process outlined under the Insolvency Act 1986 allowing directors to voluntarily close an insolvent company and settle its affairs. A company is considered insolvent when it cannot pay its debts or when its liabilities exceed its assets.​ This is normally a last resort, but it could be the best option if your company is no longer viable.

Take action. Once you’ve decided on the best plan of action, proceed as soon as feasible. The longer you delay, the more difficult it will be to remedy the issue.