Many directors are asking will Coronavirus Business Interruption Loan Debts be Written Off in the UK?
If you can’t pay your CBILS loan and are worried about closing a company with a Coronavirus Business Interruption Loan the directors need to research the personal liabilities on the business debts.
During the coronavirus pandemic, the Coronavirus Business Interruption Loan Scheme, or CBILS, provided a valuable source of emergency funding for businesses.
Is a CBILS loan repayable if the company has to go into administration or liquidation? Is Covid-19 still repayable, or can it be written off with other unpaid debts?
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With so many businesses experiencing continued trading and financial disruption due to Covid-19, is it still repayable, or can it be written off with other unpaid debts?
Let’s dive in to explain all the business debt solutions you might be able to utilise.
Table of Content
- 1 What is a (CBILS) Coronavirus Business Interuption Loan Scheme?
- 2 Key feature Of CBILS Loan
- 3 Who Is Eligible For a CBILS Loan?
- 4 Can I Be Held Personally Liable For My CBILS Loan?
- 5 What Can a CBILS Loan Be Used For?
- 6 What Happens If I Cannot Pay Back My CBILS Loan?
- 7 Can I Close My Company With a CBILS LOAN?
- 8 What Happens To a CBILS Loan During Company Administration?
- 9 Can I Enter a Creditors Voluntary Liquidation?
- 10 What Solutions Are Available For Repaying Business Coronvirus Loans
- 11 Personal Guarantees on Coronavirus Business Interruption Loans
- 12 Summary
- 13 Struggling With Other Debts
The CBILS was introduced to offer support of up to £5 million for small to medium businesses that are experiencing desperate financial circumstances and difficulties with their cash flow.
There is also the opportunity for larger firms to access emergency finance through the Coronavirus Large Business Interruption Loan Scheme (CLBILS).
The CLBILS allows struggling businesses with revenues between £45 million and £500 million to claim a business loan of up to £200 million in company funds helping many businesses with their cash flow.
CBILS can be used by many businesses for various products, including the following:
- Time-limited loans
- Overdraft loans
- Invoice finance facilities
- Asset financing
Various Government-assisted loans, such as BBLS (bounce back loan scheme) and CBILS loans, have been formed as a result of the unprecedented circumstances created by the Coronavirus pandemic, in order to help businesses stay afloat.
With the CBILS scheme, a no-credit lender can essentially become a yes-credit lender as they are backed by the Government.
Key feature Of CBILS Loan
There are various terms and conditions of the Coronavirus Business Interruption Loan Scheme.
Here are the main features of the interruption loam scheme, CBILS:
- Up to £5 million for small businesses – over a period of 6 years maximum
- Up to £200 million for large businesses – provided they have a revenue of £45 million to £500 million
- 80% Government guarantee – they will also pay the first 12 months of the loan’s interest and fees
- Access to overdrafts and invoice financing – for up to 3 years
- Security – the scheme can be used by a business for unsecured debt lending of up to £250,000. Facilities above £250,000 must prove that they experienced significant insecurity prior to taking out the CBILS.
- Personal guarantees – personal guarantees are not needed for unsecured loans below £250,000, however, loans over £250,000 can request a personal guarantee but it won’t be a secure loan on a Principal Private Residence and there is a limitation of up to 20% of the debt.
- Companies are 100% liable for the debt – there are no limitations to the interest rates that the banks can incite
- Term extension of 10 years – you can request an extension of 3 years past the 6-year limitations, provided facilities are related to the provision of forbearance.
Who Is Eligible For a CBILS Loan?
The CBILS loan was created to aid smaller businesses for any industry that have been impacted financially by Coronavirus.
To be eligible for this Coronavirus Business Interruption Loan Scheme, the small and medium enterprises must:
- The company must be based in the UK and have a turnover of up to £45 million (or up to £500 million in order to access the CLBILS)
- Limited companies that were previously identified as ‘undertakings in difficulty, under EU law, were prohibited from accessing CBILS loans. However, now it is permitted for companies in this category, with less than fifty employees and an annual turnover of below £9 million to apply for a business interruption loan scheme.
- In order to claim financial support, the CBILS loan depends on the firm providing a borrowing proposal that demonstrates, if it weren’t for the pandemic, the businesses would be deemed viable by the lender. Essentially, the company must prove if it weren’t for the social climate, they would be a profitable company.
If you are interested in applying for an interruption loan scheme, CBILS is available until 31st March 2021.
After this time, the interruption loan scheme, CBILS, will be replaced by the Recovery Loan Scheme (RLS)
Can I Be Held Personally Liable For My CBILS Loan?
The Government are 100% liable for the back loan, therefore, there isn’t any requirement for the directors of the companies to supply the CBILS creditors with any kind of personal guarantee.
Without a personal guarantee, there isn’t any serious personal financial risk for the directors entering into the business interruption loan scheme, CBILS, as they won’t be held personally liable, even if they fall into company liquidation.
The one loophole, in which directors may be deemed personally liable, is if the company is found to have used the back loan in an inappropriate manner or has entered into unlawful trading.
If the limited company has been found to have misused the loan, then personal liability may fall onto the limited company director to repay the business debts and loan repayments.
It is always best to contact licensed insolvency practitioners prior to entering into a CBILS.
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The licensed insolvency practitioners may be able to give free confidential advice on CBILS, the bounce back loan scheme, any company voluntary arrangement and even provide a professional assessment for eligible businesses.
What Can a CBILS Loan Be Used For?
You can use the CBILS for the following:
- To pay your staff’s wages
- To fund your inventory
- To manage your business cash flow
- To buy or rent a property
- Beginning a new business
- Funding or building an existing firm
- For research
- monthly business costs
It’s important to speak with a licensed insolvency practitioner and the specific accredited lenders, prior to agreeing to any Coronavirus loan.
They will be able to inform you of how you can use any alternative funding and advise on monthly repayments.
What Happens If I Cannot Pay Back My CBILS Loan?
If you know you won’t be able to pay a Coronavirus Business Interruption Loan back to the Government, then do not take one out in the first place.
This principle also stands for any Bounce Back Loan Scheme or Company Voluntary Arrangement.
However, if circumstances, through no fault of yours, do mean that you are unable to repay the loan, then don’t panic.
The Government was aware that not every firm would be in a position to repay their loans due to financial difficulty and serious debt; however, the length of COVID-19 circumstances was not anticipated.
Despite this, provided there has been no misuse of the scheme or admittance of a personal guarantee then the liability for an outstanding CBILS loan won’t fall onto your company’s director to repay.
It may be worth noting that failure to repay state-backed loans may negatively impact your credit rating score.
When CBILS loan applications began, any loan in excess of £250,000 needed to be supported by a personal guarantee, in which the companies directors would need to personally repay the loan.
The company’s directors may be made personally liable for the outstanding balance of a loan even if they didn’t sign a personal guarantee if the limited company has acted in an unreasonable or immoral way.
Can I Close My Company With a CBILS LOAN?
If you have to enter your company into liquidation during a CBILS loan agreement, then any unsecured debts your firm may have after asset sale will be written off.
What directly happens with the repayment of the funds will depend on whether the lenders require personal guarantees or if there has been any misuse of funding.
The Coronavirus Business Interruption Loan would need to be paid back by the directors should they enter liquidation if they had also signed documents agreeing to be held liable for any unsecured debt.
To ensure you would not be liable to cover unsecured debts should your company enter liquidation, seek out free advice and free consultation from a professional insolvency advisor.
What Happens To a CBILS Loan During Company Administration?
Company administration doesn’t always end up with the liquidation of a firm, it provides another rescue route that aids the formation of a strategic plan for the future of the firm.
When the administration of a firm begins, the debt owed on a CBILS will be fixed. Debts leftover from the Coronovirus Business Interruption Loan will then be liable for the directors to pay.
One example is that through administration a firm may reassess and organise its debts via a Company Voluntary Arrangement (CVA). In this arrangement, you will repay your debts via one instalment each month.
It may also be possible to pay off the Coronavirus Business Interruption Loan by selling your firm, or, as a last resort, entering the liquidation process.
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Can I Enter a Creditors Voluntary Liquidation?
CVA is an insolvency procedure that allows firms or companies with debt to dissolve in a timely manner.
Provided there have been no personal guarantees made by the company’s directors and the funds provided in the loan have been used ethically, then CVA is a plausible route to take.
If your firm is deemed eligible, then when your company enters liquidation, you may be entitled to claim for redundancy pay.
What Solutions Are Available For Repaying Business Coronvirus Loans
If you are not able to repay coronavirus business interruption loans you are able to access several debt-relief options.
Company Voluntary Arrangements (CVA)
If your business would be profitable without the CBILS or Bounce Back Loan Schemes debt, then you could arrange a Company Voluntary Arrangements (CVA).
This will allow you to trade and repay the loan in a more suitable timeframe.
If interested in speaking to a professional CVA debt advisor check out the list of best CVA companies in the UK.
Creditors Voluntary Liquidation (CVL)
If a personal guarantee wasn’t signed when you took out your COVID business loan, you could consider closing or selling your company if you struggle to repay your loan.
You can restructure your company and sell it or initiate a Creditors Voluntary Liquidation (CVL) to go into administration and close your business for good.
If interested in speaking to a professional CVL debt advisor check out the list of best CVL companies in the UK.
Business Consolidation Loans
If you can’t repay your COVID-19 loan or Bounce Back Loan in monthly repayments, you can seek both paid and free professional advice.
Support companies can help businesses to establish any suitable solutions and assess what debts are present and what options are available to pay off creditors.
These professional assistants aid you to source alternative finance that can be helpful in the long-term recovery of the previous debt.
The coronavirus business interruption loans scheme provided lenders with a government-backed guarantee of 80% on losses that may arise on facilities of up to £5 million.
With CBILS no personal guarantees are issued below £250,000.
When the coronavirus business interruption loan was greater than 250k then the lender can ask for a personal guarantee against the director.
Recoveries for personal guarantee repayments are set at a maximum of 20% of the outstanding balance of the CBILS loan.
If you are struggling to repay the CBILS loan and got personal guarantees attached here are your personal debt options.
Individual Voluntary Arrangements (IVA)
There are Individual Voluntary Arrangements (IVA) available that can help sole traders who are struggling to pay back CBILS loans.
In an IVA, you make an agreement with your creditor to repay your loan involving an insolvency practitioner.
If interested in speaking to a professional IVA debt advisor check out the list of best IVA companies in the UK.
Debt Management Plans
A debt management plan is a great solution to help you reduce your monthly repayments into a single affordable payment plan.
The DMP company must be FCA approved so you know the setup with being legislated and regulated for you to enter.
If interested in speaking to a professional DMP debt advisor check out the list of best DMP companies in the UK.
The CBILs loan scheme was implemented to assist companies in the UK to survive during the pandemic.
But if you are still struggling to pay any of the following below there are debt solutions available:
- Struggling to commercial rent
- Struggling to pay payroll
- Struggling to pay interruption loan scheme cbils
- Struggling to pay bounce back loan scheme
The coronavirus business interruption loan hopefully has helped any businesses get through the debts and tough times.
But if you are a company unable to pay debts get in touch today before it is left too late and bankruptcy beckons.
Struggling With Other Debts
Here are some other debt guides if you are struggling with different types of debts:
- Capify Business Debts
- Capital On Tap Business Debts
- Coronavirus Business Interruption Loan Debts Written Off
- Coronavirus Large Business Interruption Loan Scheme
- Directors Redundancy
- Funding Circle Debts
- Funding Options Debts
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