Contractors’ Questions: What happens if I take a CBIL, or BBL, and can’t pay it back?

Contractor’s Question: I’m a limited company contractor thinking about applying for a Coronavirus Business Interruption Loan for £50,000. I have not been able to find out, what happens If I get the loan but cannot pay it back next year or the year after; what happens?

What would happen if I did the same but with a Bounce Back Loan, and similarly couldn’t pay it back? Would failure to pay back adversely affect my personal credit score?

Lastly, I heard Money Saving Expert recently say directors ought to consider taking out a BBL and then pay it to themselves as a director's loan. That advice has apparently been condemned, but what would be so wrong about that?

Expert’s Answer: Before I address the particular issues you raise, please note that the comments I have provided in answer to your question are for your general information only. That means that, ultimately, you will need to consult both your own professional adviser(s) and lenders, prior to making any decision. There could be significant tax and legal consequences to your actions – or inactions.

You ask about the CBILS. The original terms were recently updated by the government to say that for CBIL facilities below £250,000, personal guarantees cannot be taken by lenders in relation to the facility under the scheme.

Personal guarantee is the only criteria you can guarantee

The loan will likely appear on any credit report for the company and therefore will be considered by future lenders and defaults will impact those credit reports.  In the event of default, the lender will seek to recover losses from the company’s assets.  However, it is worth noting that the process for lenders recovering defaulted amounts has not yet been tested in practice, and hence the only guidance to go on is that personal guarantees cannot be taken.   

With regard to Bounce Back Loans, as banks on the scheme cannot require personal guarantees for such loans, then on default, the banks will chase borrowers who default, seeking to seize business property or other business assets before resorting to the government guarantee to recover any losses. The loan will likely appear on any credit reports for the business and therefore will be considered by future lenders and defaults will impact those credit reports.


As to the impact which you enquire about on your personal credit score, assuming you would ‘wind up’ your company, then the usual protection offered to creditors upon a wind-up would apply and the assets of the company used to settle creditors.

Lastly, you mention guidance given about PSC directors taking both a BBL and a director’s loan. Well, the rules are not completely clear. The government has said that the purpose of Bounce Back Loans is to support ‘working capital and/ or investment’ in the business. So the issue, really, is whether using the funds for increased wages to the director or paying out dividends meets this purpose. 

As many directors pay a minimum salary to themselves, then suddenly increasing their salary amount (and/or using the funds to pay dividends), would look at odds with whether the funds are being used for the working capital or investment purpose and could be open to question and challenge. This consequence serves to reinforce my opening point that you should approach your own financial and/or accounting adviser, and put them in receipt of your full personal and company details before taking any further actions in the areas which you’re looking at.  

The expert was Chris Biggs, managing director of consultancy and chartered accountancy firm Theta Financial Reporting.

Tuesday 2nd Jun 2020
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Written by Chris Biggs

Chris Biggs leads Theta Financial Reporting’s IFRS, US and UK GAAP accounting advisory services and has a wide range of experience across both FS and non FS clients. He has specialised in providing clients with support in addressing complex financial reporting challenges including financial instruments, impairments and asset finance & leasing. His twenty years of experience includes the last ten years as a Director in a Big 4 firm, leading their accounting advisory support to banking and asset finance clients.

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