In March 2020, the UK government announced the CBIL, CLBIL and BBL schemes. These schemes were designed as a temporary relief measure for companies that were suffering from “business interruption” caused by the national lockdown.

These schemes were open to any business that was trading before 1st March 2020. They remained open for 12 months until the end of March 2021. In that time, nearly 1.7 Million loans were given by accredited lenders, totalling £79.3 Billion.

Many took these loans in good faith, hoping that they would return to normal trading conditions. Unfortunately, things might not be the same for a long time if they ever return to normal. Some businesses will not be agile enough to match the current market demand. Over the next few months, we’ll see more and more companies begin to fold.

This blog will primarily focus on the CBIL scheme as it is most likely to cause issues for businesses and their owners.

When do I have to pay?

Initial interest-free term & upfront fees

Interest rates will vary between lenders and depend on the specific lending proposal; however, the Government will pay the interest for the first 12 months after you are approved. The Government will also cover any initial upfront fees.

After this initial interest-free term, you will be required to make interest payments as you would with any other loan.

Repayments

Similar to the interest, there is an option of a 12 month repayment holiday. Meaning that you do not have to make any loan payments for the first year after you receive your loan.

After 12 months have lapsed, you must begin making repayments on the loan, including interest.

If you can afford to, you should start making repayments earlier to reduce any necessary fees and interest charges. Unlike some loans, there are no early repayment fees for CBILS. If you chose to take the repayment holiday, you would pay more interest as there will be a larger amount of capital outstanding for a longer time.

The maximum loan term was initially six years; however, this has been extended to a possible ten years, at the lender’s discretion.

What if I can’t repay?

Corporate liability

Do not wait until you have spent your loan and have no capital to pay wages or cover day-to-day costs.

There was a lack of due diligence when the Government implemented this scheme; as a result, many ‘unviable’ companies have received loans. If your company cannot pay back this loan, there should not be consequences if you have acted “reasonably and responsibly”. The Government are aware, and this was expected. However, what remains to be seen is exactly what will be determined as reasonable and responsible behaviour. This and the powers being granted to investigate directors are discussed further below.

Many companies took out these loans and thought that the trading environment would return to normal after a few months. These businesses are now stuck with arrears and interest on the loan building up.

Remember that if you cannot pay back this emergency loan, you risk your credit rating being affected at the bank. In the long term, this can limit your attractiveness to future lenders or investors.

Personal liability

Directors’ personal guarantees were used to back up CBILS loans over £250,000, unfortunately, these directors are liable. Many thought that “government-backed” means Government protected; however, this is not the case for personally guaranteed loans. To recover their money, lenders must demonstrate that they have exhausted all possible recovery channels. This includes options such as liquidation of companies, repossession of assets and even Bankruptcy.

For loans below the value of £250,000 the “corporate veil” may be lifted on the limited company if you have acted unreasonably, leaving the director(s) personally liable.

CBILS cases can be extremely complex, and lenders can become aggressive, so we always recommend that you consult expert advice if you are struggling to repay your loan.

CBILs fraud

What can you use it for?

The loan can be used to help with business expenses including, paying staff wages (directors included), rents and business rates or any monthly business costs or overheads such as phone and electricity bills. Directors can use CBILs to refinance other business debts.

CBILS loans cannot be used to pay dividends or be paid into your bank account for personal use. Recipients cannot use it for any purposes other than those business-related. This would not be “acting reasonably and responsibly”, and you could be personally liable if the company enters into liquidation.

New Investigatory powers

New powers are being granted to the insolvency service to investigate directors of companies that have been voluntarily dissolved in an attempt to avoid the repayment of loans.

Currently, the Insolvency Service has powers to investigate directors of live companies or those entering a form of insolvency where they believe wrongdoing or malpractice may have occurred.

Where evidence of either activity is uncovered, directors can face sanctions. These sanctions include a ban of up to 15 years or being made to repay the loan.

The new measures will also help prevent directors of dissolved companies from establishing a new, near-identical business under a slightly different name. This often leaves customers and other creditors, such as suppliers, out of pocket.

What next?

Enterprise Finance Guarantee scheme comparison

This loan scheme was brought in after the 2008 crash and had some similarities to the CBIL scheme.

The recovery action to be taken by lenders over personally guaranteed loans remains unclear. However, we can assume that it is likely to resemble something similar to the EFG scheme. In this instance, the loan is essentially treated as any other personal guarantee. Those who defaulted on this loan were pursued by their creditors, being issued Statutory Demands and having property and assets repossessed.

Get the right advice

Bell & Company have over a decade’s experience negotiating with business creditors, both for company and director’s liabilities.

Cases involving these loans can be complicated, especially when factoring in other liabilities. Often defaulting on one loan can have a landslide effect, bring other liabilities to the fore and leaving you in a tricky situation.

We recommend consulting with insolvency experts to get an accurate understanding of your situation and what your options are.

If you would like to find out more about CBILS and BBLS, watch our latest webinar here.

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