What happens if my business cannot repay a loan?

Missed repayments put the loan into default. The lender can demand the whole balance, enforce its security, call on any personal guarantee and, if the company still cannot pay, use insolvency procedures. Talk to the lender before the first missed payment, and take advice from a licensed insolvency practitioner if the company cannot pay its debts as they fall due.

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Default and demand

The loan agreement lists events of default. Missing a repayment is one. Others include breaking a covenant, such as a minimum level of debt service cover, giving security to another lender without consent, a judgment against the company, and the start of any insolvency procedure. Some agreements add a material adverse change in the business. A default can happen while every repayment is up to date.

On a default the lender can accelerate the loan: demand the whole balance at once, with interest and its costs. An agreement can also add default interest, a higher rate charged on overdue sums. Read the clauses before you need them, and know what your covenants are and when the lender tests them.

A creditor owed more than £750 can also serve a statutory demand on the company. If the company neither pays nor secures the debt for three weeks after the demand is served, it is treated as unable to pay its debts, and the creditor can petition the court to wind it up (section 123 of the Insolvency Act 1986). A company can also be unable to pay its debts on the facts: when it cannot pay them as they fall due, or its liabilities exceed its assets.

How enforcement runs

  1. 1

    Missed payment

    The lender writes, asks why, and may agree a short plan. Interest and charges run on the arrears.

  2. 2

    Demand

    If the default continues, the lender demands the whole balance, in writing, under the agreement.

  3. 3

    Security

    The lender enforces its charges: it takes and sells a charged asset, appoints a receiver over property, or appoints an administrator under a qualifying floating charge.

  4. 4

    Guarantee

    Whatever the company does not pay, the lender claims from each guarantor, up to any cap in the guarantee.

The order and the time between steps are set by the agreement and by the lender. Some lenders move to demand and to the guarantee at the same time.

Administration, CVAs and liquidation

Administration puts the company under the control of an administrator, a licensed insolvency practitioner, whose aim is to rescue the company as a going concern or, failing that, to get a better result for creditors than a liquidation. While the company is in administration, creditors cannot enforce their security or start legal action without the administrator’s consent or the court’s permission. A holder of a qualifying floating charge can appoint an administrator itself; the directors can do so too.

A company voluntary arrangement, or CVA, is a deal with unsecured creditors to pay part of what is owed over time while the company keeps trading. An insolvency practitioner supervises it, and it binds the unsecured creditors once creditors holding at least 75% by value of the votes cast approve it. It cannot take away a secured lender’s rights without that lender’s consent.

Liquidation ends the company. A liquidator sells the assets and pays creditors in the order the law sets: fixed charge holders, costs, preferential and secondary preferential creditors, the prescribed part, floating charge holders, then unsecured creditors. What a debenture is sets the order out in full.

Notes being taken in a planning meeting

Your duties as a director

Once a company is insolvent, or close to it, a director must act in the interests of its creditors as a whole. Treat creditors equally, protect the assets, and take advice from a licensed insolvency practitioner. Keep board minutes of what you decided and why.

Wrongful trading under section 214 of the Insolvency Act 1986, or section 246ZB in an administration, applies when a company goes into insolvent liquidation or administration and a director knew, or ought to have concluded, that there was no reasonable prospect of avoiding it. The court can order that director to contribute to the company’s assets personally, unless the director took every step to minimise creditors’ losses that a reasonably diligent person would have taken. Fraudulent trading, carrying on business to defraud creditors, is both a civil liability and a crime.

Paying one creditor ahead of the others can be undone as a preference. Where a payment benefits a connected person, such as repaying a director’s loan or paying down a debt a director has guaranteed, the look-back period is two years before the insolvency (section 240). A director can also be disqualified.

Talk to the lender before the first missed payment

A lender told early has more options: a payment holiday, a longer term, interest-only months, or a restructured facility. A lender that finds out from a returned payment has fewer. If you signed a personal guarantee, read what a personal guarantee means for a director, and take your own legal advice before agreeing anything that increases it. HM Revenue and Customs can agree Time to Pay arrangements for tax.

Personal guarantee calculator

Your share of borrowing you have guaranteed, set against life cover that would pay the lender.

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Questions people ask

Can the bank take my house if my business fails?

Only if you gave it a right to. If you signed a personal guarantee and the company cannot pay, the lender can claim the debt from you personally, take you to court and use the court’s enforcement powers, which can include a charging order over your home. If the guarantee is secured by a charge over your property, the lender already has that security. A debenture over the company does not cover your home.

What happens to a personal guarantee if the company goes into liquidation?

The guarantee survives the company. The lender recovers what it can in the liquidation and claims the shortfall from each guarantor, up to any cap in the guarantee. Where several directors signed jointly and severally, the lender can claim the whole amount from any one of them, who then has a claim against the others.

Am I personally liable for my company’s debts?

Not as a rule: a limited company’s debts are its own. You become liable if you signed a personal guarantee, if the court orders a contribution for wrongful or fraudulent trading, or if you misapplied the company’s money. A director disqualified for misconduct can also face a compensation order.

What is a statutory demand?

A formal written demand for a debt. If a company owes more than £750 and neither pays nor secures it for three weeks after the demand is served at its registered office, it is treated as unable to pay its debts, and the creditor can petition the court to wind it up. Take advice as soon as one arrives.

Can I repay my own director’s loan before the company goes into liquidation?

Repaying yourself while the company cannot pay its debts can be undone as a preference. A director is a connected person, so the liquidator can look back two years before the insolvency, and the court can order you to repay. Take advice from an insolvency practitioner before any payment to yourself or to a lender you guaranteed.

What does a personal guarantee mean for a director?

A personal guarantee is a separate contract in which you promise to pay a lender if your company does not. It makes you personally liable for the company's debt, and the lender can enforce it against your own assets. The full answer.

What is a debenture?

A debenture is a legal document that gives a lender security over a company’s assets, through fixed charges over named assets and a floating charge over the rest. It must be registered at Companies House, and it decides where the lender stands if the company becomes insolvent. The full answer.

Refinancing business debt

Refinancing replaces existing business debt with a new loan, at a lower rate, over a longer term or as one payment in place of several. A longer term cuts the monthly cost but can raise the total you repay, and early repayment charges on the old debt add to the bill. When the old debt is cleared, get its personal guarantees and charges formally released. The full answer.

Can I get a Time to Pay arrangement with HM Revenue and Customs?

A Time to Pay arrangement lets a business pay a tax debt it cannot pay on time in instalments, with interest at the late payment rate, 7.75% a year since 9 January 2026. You can set one up online for a Self Assessment debt of £30,000 or less; for other debts HM Revenue and Customs checks what you can afford before it agrees. The full answer.

Finance is subject to status and to the lender’s terms. A personal guarantee makes you liable for the company’s debt if it does not repay, and it can be enforced against your own assets, including your home. Nothing here is a personal recommendation.

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Start a funding search

Funding searches run on Swoop’s platform. Swoop Finance Limited is a credit broker and not a lender, and is authorised and regulated by the Financial Conduct Authority (FRN 936513). Buzz Accounting Ltd introduces businesses to Swoop and may receive a fee from Swoop when funding is arranged. Business funding is separate from the financial advice Equity & General Financial Services Limited gives through this website. Finance is subject to status, and a lender may ask a director for a personal guarantee.

Cover for a personal guarantee

If a lender asks you to guarantee the company’s borrowing, our advisers can advise on life cover for that debt.

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