I Cannot Afford to Repay My Business Bank Loan - help!

What are my options if my company can't repay a business bank loan?

If your company is struggling to make the repayments on a loan it is taken out, this should be seen as a huge warning sign that all is not well with the company's finances. A temporary squeeze on cash flow is relatively common, however, if the financial difficulties your business is experiencing threaten to be longer-term in nature, swift action should be taken to protect your company, its creditors, and its directors from a slide into insolvency.

The good news is that there area range of rescue and recovery options available which could help you turn the situation around. Restructuring measures can help improve the financial and operational efficiency of your business, allowing your more time and space to repay what you owe in an affordable manner, while also reducing financial wastage going forwards.

If you cannot pay your business bank loan, taking advice from a licensed insolvency practitioner can help reduce spending by downsizing operations, reassigning duties to maximise staff efforts, and introducing technology to improve the efficiency of the business.

Struggling to pay business bank loan? If you cannot pay your business bank loan, you need to speak to a member of the expert team at Real Business Rescue to understand your next steps - Call Today on 0808 253 5217

What are the consequences of falling into arrears with a business bank loan?

Once you default on a business loan, this will trigger a series of collection efforts by the bank to recover the money they are owed. These escalate in terms of severity, so taking action to bring your account up to date or otherwise come to a mutually-agreeable repayment plan, should be seen as a matter of urgency. 

• Fees and Interest - If you cannot repay your business bank loan, the next course of action the bank will take is to enforce late payment fees, interest and in some cases, administration costs for each payment that you miss. Depending on the provider, if you miss between three to six payments, you will default on the business loan. 

• Default registered - If you can’t keep up with commercial loan repayments, the agreement between the business owner and the bank will be terminated, no longer binding both parties. A loan default damages the credit record of the business as it will be visible to all lenders, making it harder to secure borrowing in the future. A credit record is a reflection of responsible borrowing behaviour, risk factors and previous credit held with lenders and banks. A poor credit record can affect future eligibility for finance and make the creditor reluctant as they will have a smaller risk appetite as a result of your borrowing history.

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• Seizure of personal and business assets - If you have taken out a secured business loan, including any form of asset-based lending, your borrowing will be secured against a specified property or other asset. This works as a safety net for the bank, so if the business owner was to default on payments, the outstanding amount would be recovered as a result of seizing the assets. Assets such as commercial property, vehicles, machinery and equipment can be repossessed if you can’t pay your commercial loan. If you are a company director taking out an unsecured loan with no track record of borrowing, the bank may request a personal guarantee agreement. By agreeing to a personal guarantee, the director agrees to pay the loan back should the company not be in a position to do so. This agreement still stands even if the company was to be formally liquidated at any point in the future.

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• County Court Judgment - The bank may issue a County Court Judgment, also known as a CCJ, which can affect the credit rating of the business. This is a formal declaration that the business owes money to the creditor and that repayment has been ordered. This will remain on the business credit record for six years, minimising your chances of qualifying for future finance.

• Winding Up Petition - Once all other recovery methods have been exhausted, your bank may choose to petition the courts to have your company wound up and forced into compulsory liquidation. This is done by presenting you with a Winding Up Petition. This petition will be advertised in the Gazette and a court hearing set to determine the future of your company. If you cannot adequately contest the winding up petition, the judge will grant a winding up order which will see your company liquidated by order of the courts. 

Options for refinancing your business bank loan

Depending on the overall financial and operational health of your company, you may be able to refinance your existing bank loan for a channel of funding more suitable for your business and its needs. 

Refinancing a business bank loan may work out to be a cost efficient option and a quick way to pay off your commercial loan if you are struggling to raise funds. If you are able to source a cheaper option than your current loan, refinancing can help minimise current debt, replacing it with a slightly cheaper debt.

By refinancing, you may be able to find a better deal with reduced interest, longer payment terms and free up money to pay off your debt. One of these options may be to secure a form of invoice finance.

What is invoice finance?

There are two types of invoice finance options; invoice factoring and invoice discounting.

Invoice finance can be used to speed up cash flow after a service has been provided or goods delivered. Once an invoice has been issued, the cash tied up in the outstanding invoice will be released by a lender. If you have completed a large sale and you are awaiting payment from the customer, invoice finance allows you to access funds quicker.  

The differences between both invoice finance options are as follows:  

Invoice Factoring – Once the service has been provided and the invoice has been raised, the lender will transfer majority of the balance to your company. Once the customer makes payment, this will be received by the lender, who will then transfer an agreed amount to your company, excluding fees and charges. The lender will have majority control over the collection of the debt from the customer.

Invoice Discounting – Once the service has been provided and the invoice has been issued, the lender will pay majority of the balance to your company. Once you receive payment from the customer, you will retain an agreed amount and the remaining balance will be sent to the lender, including agreed fees and charges. You will have full control over the sales ledger and the collection of the debt.

The funds can help meet repayment for your commercial bank loan, saving you in late payment fees, interest and a termination of contract from the banking facility. By accessing the funds quicker and bridging the gap between the sale and payment received, you will be able fulfil your payment duty to the bank. We deal with over 50 finance lenders, so we can put you in touch with an invoice finance provider, helping to quickly improve cash flow.

Insolvency options if you cannot pay your company's loan commitments

If the business is on the road to insolvency, simply refinancing may not be enough to help your company escape the problems it is facing. In this case, you may need to consider entering into formal insolvency proceedings to either rescue your company, or else wind down its operations in an orderly manner if it beyond the point of rescue.

If your company is juggling a range of creditors as well as the bank - such as suppliers and HMRC - you may be able to enter into a company voluntary agreement (CVA). A CVA allows you to formally negotiate lower terms with creditors if you believe that your business can be profitable again. It can protect against any legal action that can be taken against you by creditors, halting the pressure and allowing for some breathing space.

If, however, your business's debt problems are insurmountable, placing the company into a voluntary liquidation process could be the best for all parties. Voluntary liquidation by way of a Creditors' Voluntary Liquidation (CVL) will protect your creditors from further losses, allow them to recover as much as possible following the liquidation of company assets, while also ensuring you are adhering to your legal obligations as the director of an insolvent limited company. 

At Real Business Rescue, we have a team of licensed insolvency practitioners in our nationwide network of offices, who can look into the best option for your company if you are struggling to pay a business bank loan. If you would like to explore invoice finance options or discuss restructuring, call our experts today to arrange a free no-obligation consultation.