What can I do if I can’t pay my company’s bank loan?

If your company can’t meet its bank loan repayments, the position needs careful attention, particularly if you’ve signed a personal guarantee. The debt belongs to the company but, depending on the terms of the loan, your personal exposure may be significant.

The options available to you depend on how far the arrears have built up, whether the bank has formally demanded repayment and whether the business can realistically continue.

What can the bank do if I stop repayments?

When a company defaults on a loan, the bank’s first step is usually to contact you directly and seek a resolution. 

That might mean a short-term payment holiday, revised repayment terms or a restructured facility. Banks generally prefer to recover what they’re owed over time rather than enforce immediately, but that position changes if they don’t believe the company can service the debt.

If the bank loses confidence in the company’s ability to repay, it can issue a formal demand for the full outstanding balance. At that point the loan becomes immediately repayable. 

If the debt is secured against company assets, the bank may be entitled to appoint a receiver to realise those assets. Where a floating charge is in place over the company’s assets, the bank may also be able to appoint an administrator.

The timeline from missed payment to formal enforcement varies, but once a formal demand has been issued, the options available to you narrow quickly.

What if I have a personal guarantee?

This is the most important thing to establish early. If you signed a personal guarantee when the loan was taken out, the bank can pursue you personally for the outstanding balance if the company can’t repay it. Limited liability doesn’t protect you from a guarantee you’ve signed.

The terms of personal guarantees vary. Some are limited to a specific amount, others cover the full outstanding balance plus interest and costs. Some require the bank to exhaust its options against the company before pursuing the guarantor. Others allow them to come to you directly.

If you’re not certain what your guarantee covers, finding out now, before the bank makes a formal demand, is important. Once enforcement starts, your options for managing your personal position become more limited.

Talk to the bank before the situation escalates

Most banks have specialist teams that deal with businesses in financial difficulty. Engaging with them early, before repayments are formally in default, tends to produce better outcomes than waiting for a demand letter.

If you can demonstrate that the business has a realistic future and the problem is manageable, the bank may agree to a temporary payment holiday, a reduced repayment schedule or a restructured facility. These aren’t formal insolvency processes and they don’t bind other creditors. But they can create enough breathing space to stabilise the position.

If the bank isn’t willing to negotiate, or the wider financial position is more serious, a formal process is likely to give you more reliable protection.

If the business can still trade

Where the business is fundamentally viable but the loan has become unserviceable in its current form, there are structured routes that may allow it to continue.

A Company Voluntary Arrangement (CVA) is a formal agreement between the company and its unsecured creditors. It’s worth noting that bank loans are often secured, which means the bank may not be bound by a CVA in the same way as unsecured creditors. 

The interaction between secured and unsecured debt in a CVA is something a qualified insolvency practitioner can advise on specifically for your situation.

Administration is more commonly used where a secured lender is involved. The automatic moratorium that comes into effect pauses most creditor action, including enforcement by the bank, while the administrator works out whether the business can be rescued or sold as a going concern. 

Where the bank holds a qualifying floating charge, it has significant influence over whether administration is the right route and who is appointed.

If the business can’t continue

If the business isn’t viable, a Creditors’ Voluntary Liquidation (CVL) brings the company to a compliant close. A licensed insolvency practitioner realises any remaining assets and distributes them to creditors in the correct order of priority.

As a secured creditor, the bank ranks ahead of unsecured creditors and will look to recover what it’s owed from any assets it holds security over before the remainder is distributed. If the security doesn’t cover the full balance, the shortfall becomes an unsecured claim.

For directors, a CVL ends the company’s obligations in a structured, regulated way. What it doesn’t automatically resolve is any personal liability under a guarantee. If a guarantee is in place, the bank can pursue you for any shortfall after the company’s assets have been realised.

Key takeaways

• A bank can issue a formal demand for the full loan balance if repayments stop, and enforcement can follow quickly after that.
• If you’ve signed a personal guarantee, your personal exposure doesn’t end when the company closes.
• Engaging with the bank early, before formal default, gives you more room to negotiate.
• Administration is often more relevant than a CVA where a secured lender is involved.
• A CVL closes the company in an orderly way but doesn’t extinguish personal guarantee liability.
• Taking advice early, particularly where a guarantee is in place, gives you the best chance of managing both the company’s position and your own.

Talk to a qualified insolvency practitioner ABout Bank Loan Debt

If you’re struggling with a business bank loan and concerned about what it means for you personally, we can help. We’ll look at the company’s position and your own, explain how the two interact and walk you through the options available to you.

You don’t need to have reached a crisis point before getting in touch. If you’re unsure whether the position is serious enough to warrant advice, a conversation will help you answer that question.

We’ll give you a clear picture of where things stand and what your options are.