Can’t pay business bank loan

What happens if I can’t meet the monthly repayments on my company’s loan?

When a limited company takes out a loan with a bank or other finance provider, they enter a contract to repay the amount borrowing – along with interest – across a series of monthly instalments. If a company breaks this contract by missing one or several repayments, action must be taken quickly to stop the situation spiralling out of control.

What should I do if I miss a payment toward a business loan?

Your first step is to get to the root issue as to why your company cannot make the monthly payment towards its bank loan. Many companies will experience short-term cash flow issues across their lifecycle, whether this is due to customers paying late or a one-off large expense.

If this is a short-term issue and you are confident in being able to resume the payments, you should make it a priority to speak to your lender and make them aware of the situation. Banks, and others you owe money to, would much rather you be transparent about your inability to pay and you may be surprised at how they are happy to work with you to put a plan in place to get your account back on track.

However, if being unable to afford the monthly repayments on your business bank loan is just one of a number of debts your company cannot pay, and this has been the case for several months, this could indicate that the company is on the road to insolvency.

Cannot pay business bank loan due to company insolvency

A company is said to be cash flow insolvent when it can no longer make its contractual payments to creditors as and when they fall due. This includes business borrowing such as bank loans, but also other liabilities such as invoices, rent, or utility bills.

If your cash-flow issues are ingrained and long-term, such as due to drop in customers or an increase in your operating costs, you may have to explore your insolvency options with a licensed insolvency practitioner in order to resolve the financial problems your company is facing.

When your company is insolvent and unable to keep up with its contractual obligations, you have a legal responsibility as its director to prioritise the interests of outstanding creditors and place those above those of yourself and your fellow directors/shareholders.

By seeking professional insolvency advice once you become aware your company is insolvent, you are ensuring that you adhere to your legal requirements, as well as minimising the financial losses of all concerned parties. 

What happens to business bank loans during liquidation?

If your business’s financial problems have taken it beyond the point of rescue, there may be no alternative other than to place the company into liquidation. This can be done via a director-initiated process known as a Creditors’ Voluntary Liquidation (CVL).

As part of the liquidation process, all debts belonging to the company – including business loans - will be written off if there are not sufficient assets to repay the money owed. The company will cease to exist as a legal entity and directors cannot be chased for repayment. There is an exception to this rule, however, and that is if the business loan has been secured with a personal guarantee.

If director’s have given a personal guarantee to underpin the loan, then responsibility for repaying the remaining amount will pass to the directors following the liquidation of the insolvent company.

Your licensed insolvency practitioner will be able to talk you through your options if you have given a personal guarantee for company borrowing.

How UK Liquidators can help

If you cannot afford to pay your business bank loan, or any other borrowing your company has taken out, speak to the experts at UK Liquidators. Our team of licensed insolvency practitioners are here to provide you with the expert help and advice you need during your company’s most financially challenging times.