What happens if you cannot pay your company’s loan?

If you can’t manage the repayments on a business bank loan, carefully review the terms and conditions. Check if you might be personally responsible for repaying the loan. Limited companies have limited liability, protecting them from debt responsibility. However, some lenders may ask directors to sign a personal guarantee for added loan security. This makes directors potentially liable if the company can’t repay the business bank loan.


I can’t pay the business bank loan

Starting a new business can be tough, especially when financial obligations cut into profits and the bank pressures you for loan repayments. Soon, reminder letters arrive with increasing interest and higher monthly payments.

To rescue your business from mounting debt and avoid falling behind on the bank loan, consider restructuring and seeking alternative finance. If loan repayment becomes impossible, consulting a licensed insolvency practitioner for advice can help cut costs by downsizing operations, reallocating duties, and introducing technology for efficiency.

Failing to meet business loan repayments may lead to consequences damaging the company’s reputation in the eyes of creditors.


Defaulting on a business bank loan

If you can’t repay your business bank loan, the bank may apply late payment fees, interest, and sometimes administration costs for each missed payment. Missing three to six payments can lead to loan default.

Falling behind on commercial loan repayments terminates the agreement between the business owner and the bank. A default harms the business’s credit record, visible to all lenders, making it harder to borrow in the future.

A credit record reflects borrowing behaviour, risk factors, and past credit with lenders. A poor credit record affects eligibility for future finance, making creditors hesitant due to a smaller risk appetite from your borrowing history.


Seizure of personal and business assets

With a secured business loan, tied to assets like property or equipment, the bank has a safety net. If you default, they can recover the outstanding amount by seizing these assets—commercial property, vehicles, and machinery.

For company directors getting an unsecured loan without a borrowing history, the bank might ask for a personal guarantee. By agreeing, the director commits to repaying the loan if the company can’t. This commitment holds, even if the company is liquidated in the future.


County Court Judgment

The bank might issue a County Court Judgment (CCJ), affecting the business’s credit rating. It’s a formal notice declaring the debt owed with a repayment order, sticking to the credit record for six years, reducing future financial chances.

To tackle outstanding debt, consider alternative finance like invoice factoring or discounting. Get a cash advance on unpaid invoices, repay the bank early, and inject emergency funds into the business, steering it away from debt and towards profitability.

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Paying off your business bank loan

I. What is invoice finance?

There are two types of invoice finance: invoice factoring and invoice discounting.

Use invoice finance to fast-track cash flow after providing a service or delivering goods. Once you’ve issued an invoice, a lender releases the cash tied up in it. If you’ve made a big sale and are waiting for payment, invoice finance lets you access funds faster.

Now, the distinctions between the two invoice finance options are:

II. Invoice Factoring: After providing the service and raising the invoice, the lender transfers most of the balance to your company. Upon customer payment, the lender receives it, and then transfers an agreed amount to your company, minus fees. The lender controls debt collection.

III. Invoice Discounting: After providing the service and issuing the invoice, the lender pays most of the balance to your company. Upon customer payment, you retain an agreed amount, and the rest, along with fees, goes to the lender. You have full control over the sales ledger and debt collection.

Accessing funds swiftly helps repay your commercial bank loan, preventing late fees, interest, and contract termination. Bridging the gap between sale and payment fulfils your payment duty. With connections to 50+ finance lenders, we can link you with an invoice finance provider, rapidly boosting cash flow.

IV. Refinancing a business bank loan

Refinancing a business bank loan could be a cost-effective and swift way to settle your commercial loan when fund-raising is challenging. If you find a cheaper option, it minimises current debt, replacing it with slightly cheaper debt.

Refinancing may offer a better deal with reduced interest, longer payment terms, and freed-up money for debt repayment. If a cost-effective option isn’t available, considering alternative options might better suit your business, especially with bad credit.

If your business faces insolvency, consider a Company Voluntary Agreement (CVA) to negotiate lower terms with creditors. This protects against legal action, providing breathing space.

At Vanguard Insolvency, our licensed insolvency practitioners nationwide can explore options for your struggling company. For help with a business bank loan, invoice finance, or restructuring, call for a free consultation.

David Jackson MD
Senior Partner at Vanguard Insolvency Practitioners | Website

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.