Can a company write off a CBILS loan?

What happens if my company can’t repay a CBILS loan?

The Coronavirus Business Interruption Loan Scheme (CBILS) was introduced by the Chancellor at the start of the pandemic, with loans being backed 80 per cent by the government.

Personal guarantees weren't required for CBILS loans of up to £250,000. Unfortunately, some lenders did demand them, and this is a crucial element when considering whether or not your CBILS loan might be written off.

If you’ve provided a personal guarantee to your lender, they are likely to call it in if the company declines and cannot meet the repayments. So what are the ramifications of this, and is there anything you can do improve the financial situation of your company?

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

Your company is fully liable to repay the loan if it continues to trade, as the 80 per cent government guarantee applies to the lender, not the borrower. Many businesses continue to struggle with cash flow following the Covid pandemic, however, and you may be finding it difficult to repay your coronavirus business loan.

If the company declines to the extent that liquidation is the only option, it may be possible to write off the loan. CBILS loans are unsecured, and it's unlikely the company will have sufficient funds to pay it in full following the liquidation sale of assets.

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Personal liability for a CBILS loan

There are instances where a director could become personally liable for a coronavirus loan, including where a personal guarantee has been provided.

Personal guarantees and CBILS
Some protection was provided for company directors by the government in relation to 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
When a company enters liquidation director conduct is investigated as a matter of course, to establish why the business failed. If misconduct becomes apparent during the investigation ‐ if the loan wasn't used for the economic benefit of the business, for example, or there were anomalies on the application form, it may leave a company director open to personal liability.

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

There may be various options available to you if your business is struggling to repay its coronavirus loan, including:

Alternative finance
One possibility is to obtain funding from an alternative financier, such as a factoring firm or invoice discounter. This can significantly boost working capital for businesses with a strong sales ledger. Other alternative lenders include asset‐based financiers, who may be able to offer your business valuable lump sum working capital if it owns assets of significant value.

Debt restructuring
Another option could be to enter into a Company Voluntary Arrangement, or CVA. This means that your debts are restructured to make monthly payments more affordable for the company whilst you trade your way out of difficulty. A CVA typically lasts for up to five years, and is suitable for companies with temporary cash flow difficulties.

Company administration
Company administration may also be a potential route away from financial difficulty, especially if your company is experiencing severe creditor pressure. Company administration offers you an eight‐week moratorium on creditor action, so protecting you from a creditor’s winding‐up petition.

If you would like more information and independent professional advice on your CBILS loan, and support on taking the next steps, please contact our expert team. Real Business Rescue are insolvency specialists and can provide the guidance you need in this situation. We offer free, same‐day consultations, and operate a broad network of local offices around the country.