What happens if you can’t pay back your Coronavirus Business Interruption Loan Scheme (CBILS) loan?
The CBILS aimed to provide much-needed financial support to small and medium-sized businesses, which were disproportionately impacted by the pandemic. The scheme, launched in March 2020, offered loans ranging from £50,000 to £5 million. It was backed by an 80% government guarantee, which made it much easier for businesses to access credit and mitigate the crisis’ economic impact.
The CBILS proved to be a lifesaver for many companies, allowing them to maintain cash flow and preserve jobs. In total, over 109,000 businesses benefited from the scheme, with loans amounting to approximately £26.3bn distributed in the UK.
Your business’ options if it can’t pay its CBILS loan
With the economy yet to fully recover from the pandemic – and with further disruptions to businesses in the form of Brexit, inflation and staff shortages – you might find you struggle to repay your CBILS loan. If you find yourself in this situation, there are several avenues you can explore before looking at an insolvency process:
- Refinancing: Some businesses might qualify for refinancing or debt consolidation, which would allow you to restructure the debt and potentially secure more favourable terms.
- Negotiate payment terms: You should also contact your lender to discuss adjusting the repayment terms. Lenders might consider offering extended repayment periods, interest-only payments or payment holidays.
- Seek financial advice: Facing business debt is a stressful situation. You should consult with your accountant or a licensed insolvency practitioner to understand your options and make informed decisions to improve your financial situation.
Our licensed insolvency practitioners and business rescue experts are experienced in guiding businesses through these options, as well as looking at more formal insolvency solutions.
Insolvency procedures as a solution
If your business is struggling to repay a CBILS loan and is facing insolvency, entering an insolvency process might be the most effective way to clear your debts. Insolvency doesn’t have to mean the end of your business. It could actually be a way to rescue your business and bring it back into profit. The options available to you might include:
Company Voluntary Arrangement (CVA): A CVA allows a business to repay its debts over a specified period, subject to approval by creditors. The company can continue to trade and the arrangement is legally binding, preventing further legal action from creditors. This gives you the breathing space you need to regroup with your insolvency practitioner and work with them to implement changes in your business that will get you back on track.
Administration: Ultimately, the aim of an administration is to keep your business open while shedding the parts of it that don’t have a future. Administration involves appointing an insolvency practitioner to take control of your insolvent company. It’s their role to work toward achieving the best outcome for the business’s creditors, which can include selling some of the company’s assets to repay its debts, restructuring or finding a buyer to keep the business open under a new company.
Creditors’ Voluntary Liquidation (CVL): If your company is insolvent and unable to continue trading, you could consider liquidating it using a CVL. As part of this process, your licensed insolvency practitioner will sell your business’ assets to repay its creditors, afterwards closing the company. But that doesn’t necessarily mean the end of your business. When managed correctly, it is possible to reopen your business under a new company. We call this a Start Afresh Liquidation.
Each of these approaches has its own set of advantages and challenges. As all insolvency processes must legally be overseen by a licensed insolvency practitioner, we’re the best person to speak to about the pros and cons of each solution. We always give advice that’s tailored to your circumstances. But the decision on which path to take is always up to you.
By exploring all the options, you can seek to emerge stronger from the crisis. Even taking the appropriate insolvency measures can help you to achieve the best outcome for both your business and its creditors.