Can’t Repay Your CBILS Loan?

The Coronavirus Business Interruption Loan Scheme (CBILS) provided billions of pounds in loans to SMEs throughout the UK. These loans were given out with little to no due diligence and borrowers were often unsure of the consequences.

Now, as payment holidays come to an end and businesses are required to repay these loans, they are becoming a financial burden on companies and directors. Unfortunately, in the case of these loans ‘government-backed’ does not provide much protection.

“How much am I liable for?”

Lenders advertised CBILS loans as being ‘backed by the UK government’. What this means is that the government would pay the lender 80% of the value of the loan, if a borrower was to default.

This has led to many businesses taking these loans under the belief that lenders would not pursue them for the full amount they owed. Unfortunately, this is far from reality. To recover this 80%, lenders must demonstrate that they have ‘exhausted all recovery methods available’.  So, the borrower is still 100% liable.

As a result, lenders will still pursue these loans and, in some cases, go further with recovery tactics as opposed to the recovery procedure standard loans.

Can’t Pay Your CBILS loan?

What this means for your business

There was a lack of due diligence when the Government implemented the CBIL scheme. As a result, many ‘unviable’ companies have received loans and are now at a stage where they cannot pay them back.

If your company cannot pay back this loan, there should not be consequences if you have acted ‘reasonably and responsibly’. In formal insolvency such as liquidation, an insolvency practitioner will investigate the conduct of the business and its directors.

There are a variety of factors that could lead the Insolvency Service to determine that your conduct was inappropriate. For example, if you contributed to the insolvency of the company or if you took money from the company irresponsibly.

The most common reasons for scrutiny with CBILS loans are:

• Using the money incorrectly – CBILS loans were only for business expenses. If you used any of the money for personal expenses or transferred some to personal accounts, you could have broken the rules.
• Overstating revenue – These loans were given largely based on revenue and projected profits. This allowed many recipients to overstate these figures to secure more funding. Again, if this is the case you could face serious consequences.

If it is found that you have acted irresponsibly, you can face serious repercussions. This can see directors disqualified and barred from being directors of a company, for up to 15 years. Most importantly, you can be made liable for some or all the company’s debts, even if there are no personal guarantees. The best way to avoid this scrutiny is by consulting business insolvency experts to find out how best to mitigate your exposure.

Personal liability

As mentioned above, CBILS loans are generally a business liability however, you can become personally liable in a formal insolvency situation.

Lenders did require personal guarantees on CBILS loans over £250,000. Unfortunately, as a result, these directors are liable. If your business has missed payments, defaults on your loan or enters insolvency, the liability will pass to any directors that have guaranteed the loan.

To recover their money, lenders must demonstrate that they have exhausted all possible recovery channels. This includes options such as forcing the liquidation of companies, repossession of assets, and even Bankruptcy. You can find out more about the full consequences of personal guarantees here.

What is an ‘all monies clause’?

 An ‘all monies clause’ or ‘all monies security’ is a little-known feature of lender agreements. It means that the lender’s security covers all money owed to the creditor, across different arrangements. Essentially, it means that if you have a personal guarantee with a lender and then take out another loan, both will be covered by the same personal guarantee.

So, even if you did not sign a personal guarantee for your CBILS loan, you may be personally liable, depending on other loans with the same lender. In this case you could become liable for multiple debts.

It can be difficult to determine if there is an ‘all monies clause’ in your lending agreements, especially as you have to review the original terms and conditions of each loan agreement. The easiest and quickest way to find out if there is an all monies clause in your agreement is to have our experienced business analysts review your documentation – this is all part of your free initial case review.