What happens if you can't repay a business loan?

If a business can't repay a loan, what happens next depends mainly on what the loan agreement says, whether the loan is secured, and whether anyone has given a personal guarantee. This guide is general information, not advice on your own situation.

Falling behind on repayments can be frightening, and it's common to put off thinking about it. Knowing how the process usually works can make it easier to ask the right questions.

What usually happens first

Most agreements set out what counts as a missed payment and what the lender may do about it. Typically, a lender may:

• contact you about the missed payment
• charge late payment fees or extra interest, if the agreement allows
• ask you to bring the account up to date

Many lenders have processes for customers who are struggling, and some are willing to discuss options. Whether they do, and what they can offer, depends on the lender and the agreement.

When a missed payment becomes a default

Your agreement sets out when missed payments or other breaches count as a default. After a default, the lender may be able to:

• demand repayment of the whole balance, not just the missed instalments
• pass the debt to a collections or recovery team
• take legal action to recover the money
• record the default on the business's credit file

Defaults can make it harder and more costly to borrow later. Our guide to business loans with bad credit covers how lenders view them.

Secured loans: what's at risk

If a loan is secured on an asset such as a vehicle, equipment or property, the lender may be able to take and sell that asset if the debt isn't repaid, according to the terms of the agreement. Secured lending puts the asset at risk, which is why it's worth being clear about exactly what has been offered as security. See secured vs unsecured business loans.

Personal guarantees: what's at risk for directors

A limited company is normally treated as separate from its owners. A personal guarantee changes that for the debt it covers: the director who signed may be asked to repay it from their own money if the business can't. Many unsecured business loans ask for one, so "unsecured" doesn't always mean there is no personal risk.

If you aren't sure whether you gave a guarantee, check your agreement, because the answer changes what a default could mean for you.

Where to get help

• Your lender. Raising a problem early gives a lender more room to discuss options than waiting until payments have been missed for a long time.
• Business Debtline. A free, independent service that helps small businesses and sole traders in the UK with debt problems.
• An accountant or regulated adviser. They can look at your accounts and your agreement and tell you where you stand. We are a broker, not an adviser, so we can't advise on your own debts.

If you're thinking about taking on new borrowing to cover existing debt, the costs and risks can be different, so the terms deserve a careful read first. Our guide to being turned down by your bank looks at other routes.

Before you borrow

The best time to understand these risks is before signing. Worth checking in any agreement: whether there is security, whether a personal guarantee is required, what fees apply to late or missed payments, and what the lender can do after a default. Our guide to how to get a business loan in the UK explains what lenders look for.

Getting help comparing

We're a commercial finance broker, not a lender. We introduce your business to the lenders on our panel so you can compare without approaching each one yourself. It's free to check, and any fee is confirmed before you proceed. We can't promise approval.

You can check your options in a few minutes, with no obligation.