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I have borrowed money via CBILS or BB, what next?

Posted 25/08/2020 by Justin Lavery

The CBILS and BB loans are essential for businesses affected by the Coronavirus pandemic.

However, it is important that you don’t inadvertently walk yourself into a problem by not realising the potential consequences of what you do with this money.

HM Treasury have clearly warned that any misuse of the scheme could result in prosecution for fraud.

Loans are a debt, not a grant

It must be remembered that Bounce Back Loans are a debt – not a grant – and consequently have terms and conditions and contingent liability most especially for sole traders and partnerships being personally jointly and severable liable.

The government is providing 100% security to the banks for loans taken out under the BBLS, however, it is the responsibility of the business to pay back the loan once monthly repayments begin following the initial 12-month grace period. The government will pay the lender the interest due for the first 12 months directly unless otherwise stated by you.

As the government is providing the bank’s security for the full loan amount (reference BB Loans only) this means that company directors will not need to provide a personal guarantee to underwrite the borrowing.

Not having to provide a personal guarantee becomes extremely valuable if the company is unable to recover from the impact of Covid-19, or otherwise finds itself in financial distress at a later date. If the company becomes insolvent and subsequently enters a formal insolvency procedure, such as Creditors’ Voluntary Liquidation, then responsibility for repaying the Bounce Back Loan will remain solely with the company and liability cannot and will not be transferred to directors or other shareholders provided they comply with their statutory and fiduciary duties as a director. This means there is no risk to a director’s personal assets or individual credit rating should their company not be in a position to repay the loan.

Next blog: What can a bounce back loan be used for?

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