Extended Support for SMEs
The Chancellor Rishi Sunak announced plans, yesterday, to revise the Coronavirus Business Interruption Loan Scheme (CBILS) to extend support for small and medium sized businesses affected by the coronavirus crisis.
The scheme originally went live on 23 March to offer loan facilities to SMEs struggling to secure commercial lending during these difficult economic times. £90 million of lending has been accessed by some 1,000 businesses so far. However, there have been concerns that lenders have been slow in meeting demands for help and that many small companies have collapsed as a result of not being able to reach the support quickly enough. Changes are being made to maximise the support available to SMEs.
What changes are being made?
The Chancellor has announced that the scheme will now be extended to all viable small businesses affected by Covid-19, not just those unable to secure regular commercial financing. When the scheme was introduced, lenders were to offer finance on normal commercial terms without the need to make use of the scheme, if they were able to do so. Small businesses will now be able to access CBILS directly, rather than first being offered lending on standard commercial terms.
The government has announced its own policy change, framed as “prohibiting lenders” from requesting personal guarantees for loans under £250,000. This means that borrowers will not need to use their personal assets to secure a loan for their business. It is worth noting that lenders were already prohibited from seeking specific security from business owners over their primary residential property, but if a personal guarantee had been enforced by bankruptcy, then their residential property would have been exposed anyway. For loans over £250,000, personal guarantees will be limited to just 20% of any amount outstanding on the CBILS lending after any recoveries from business assets. The new measures will apply to finance already offered under the scheme.
Finally, operational changes will be made to speed up lending approvals, though the government has not detailed the changes that are to be made.
What about larger businesses?
Larger businesses affected by Covid-19 have also raised concerns about access to support. The Chancellor has announced a new Coronavirus Large Business Interruption Loan Scheme (CLBILS) which offers loans of up to £24 million to firms with an annual turnover of between £45 million and £500 million. Like CBILS, the government will provide lenders with a guarantee of 80% on loans.
Will the changes really make it easier for SMEs to access lending?
That is the intention. Decision-making under the CBILS scheme is fully delegated to the lenders so it really depends on how far they go to implement the new ‘rules’. The Chancellor will be speaking with bank Chief Executives next week to discuss the schemes and “ensure everybody is playing their part”. The definitions and guidelines are not well defined in any of this new guidance and there are lots of questions, most of which will be dealt with as we see how specific lenders interpret what they hear from the Chancellor.
This note is based on information as at 3 April 2020 and will be updated as and when further information is provided.
Insight from Pamela Muir, Corporate,Insolvency, Restructuring Partner and Chris Allan Corporate Partner at Thorntons. For more information contact Pamela or Chris on 03330 430350, alternatively email pmuir@thorntons-law.co.uk or callan@thorntons-law.co.uk
