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Coronavirus Business Interruption Loan Scheme - Borrower beware

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The Coronavirus Business Interruption Loan Scheme (CBILS) has had a slow start and Chancellor Rishi Sunak has been forced to overhaul the scheme following pressure from small business owners, primarily at the paltry level of loans sanctioned compared to the number of applicants and arguments over the extent of personal security required (which has led to applications being refused).  On 3 April 2020 the UK Government announced the following changes to the CBILS, which came into effect on 6 April 2020:

  • Lenders will no longer be able to request personal guarantees for loans under £250,000. For facilities of more than £250,000, personal guarantees may still be required, at a lender’s discretion, but recoveries under these will be capped at a maximum of 20% of the outstanding balance after the proceeds of business assets have been applied and a Principal Private Residence may not be taken as security. The new rules will also apply to existing borrowers under the scheme.
  • Lenders will no longer be permitted to refuse applications for a CBILS loan on the basis that the applicant business is eligible for regular commercial financing; insufficient security is no longer a condition to access the scheme. Businesses that have previously been refused CBILS loans may re-apply.

As already advised, the UK Government will cover the first twelve months of interest and fees and will guarantee 80% of any CBILS loan. The maximum loan value is £5 million and an applicant must have an annual turnover of not more than £45 million.

As a result lending has increased – although still very low when compared to the number of applicants – and 4 new lenders were added to the accredited lenders panel on 11 April 2020.  UK Finance will commence a CBILS monitoring service on its website from 15 April 2020 and hopefully progress will continue to be made.  The website of the British Business Bank (who operate the CBILS on behalf of the UK Government and the accredited lenders) contains a useful summary of the key elements of the scheme.  However, it remains to be seen whether the scheme will have to be overhauled for a second time if small businesses continue to struggle to obtain access to working capital funds in a timely fashion.

The devil really is in the detail with the CBILS so please feel free to contact Simon Porter, Head of Corporate and Commercial, if you have any concerns or questions.  Once you obtain a loan approval, Simon will be on hand to provide independent legal advice on any documentation, including personal guarantees or other security, you are being required by the lender to enter into.

Please note that this information is for guidance only and should not be regarded as a substitute for taking full legal advice on specific facts and circumstances.