The Government and businesses alike have raised concerns over lenders’ willingness to grant loans via the Government’s Business Interruption Loan Scheme (the “Scheme”).

Speaking at Downing Street yesterday evening, the Business Secretary, Alok Sharma, expressed his concern that lenders are continuing to offer their business loans and products on their standard commercial terms in the first instance, with interest rates in some cases being charged as high as 30%. If lenders can offer financial support to their business customers whilst utilising their own products and services and without the need to rely upon the Scheme, it appears they are continuing to do so.

One of the current terms of the Scheme states that it is at the discretion of a lender as to whether the Scheme may be used for unsecured lending facilities that are granted for £250,000 or under. For any facilities granted in excess of £250,000, lenders must establish a clear lack of security prior to offering businesses access to the Scheme. Furthermore, it would appear that lenders are continuing to make access to the Scheme contingent upon directors utilising their own property and assets as a form of security in return for obtaining an emergency bailout, which may even include entering into personal guarantees! This is clearly not what the Government had intended when offering the Scheme, as the intention behind the Scheme is to relieve the pressure that is being placed on businesses, not for this to be increased by asking directors to personally guarantee the debt.

Changes to the Scheme are imminent and it is clear that the Scheme has not been implemented as smoothly as the Government may have hoped. The Government has expressed that it intends to iron out these issues and to make the terms of the Scheme clearer in order to make access the Scheme as simple as possible.

If you need any help and assistance in relation to loans or personal guarantees, Franklins are here to help. Please do not hesitate to contact Holly Threlfall, Associate Partner in our Business Services team on 01604 828282 / 01908 660966 or email holly.threlfall@franklins-sols.co.uk.

As COVID-19 intensifies and emergency legislation is being passed, the Government has put in place unprecedented support for businesses, seeking to protect the wellbeing and health of the UK economy. 

The Chancellor announced in the 2020 Budget that there would be temporary, timely and targeted measures to support the business community. One of these measures is the Coronavirus Business Interruption Loan Scheme. 

The primary objective of the scheme is to support small and medium sized businesses to access financial support from banks up to £5million (previously this was up to £1.2million) during this time of uncertainty and the inevitable cash-flow disruption.

Key Features

The key features of the scheme are:

• up to £5million available to small and medium sized businesses;
• repayment term of up to six years for loans and asset finance facilities and up to three years for overdrafts and invoice finance facilities;
• partial government backed guarantee of 80% against the outstanding balance;
• no fee payable by the businesses accessing the scheme;
• no upfront cost and lower initial repayments with the assistance of the Government covering the initial 12 months of interest and fees due and any lender-levied fees;
• at the discretion of the lender, unsecured lending for facilities of £250,000.00 and under; and 
• the borrower will remain 100% liable for the debt raised through the scheme. 

How does it work?

In order to take advantage of the scheme, you would apply to one of the 40 accredited finance providers (which include all major banks) for funding. You would need to submit a business plan as soon as possible for them to consider with your application. If successful, your advance is then guaranteed for up to 80% by the British Business Bank (which is government owned).

What is the purpose of the guarantee?

The Guarantee minimises the associated risk to your lender of a default on the loan, providing them with the reassurance that should you fail to pay the British Business Bank will step in. Ultimately, the Government is guaranteeing 80% of the outstanding balance to your lender, subject to an overall cap. However, this does not mean that they are making the repayments for you. The guarantee is a safety net for the banks, you will still need to make repayments as principal obligor however should you be unable to make repayments as they fall due to insolvency your lender has the surety of repayment from the government. I sincerely hope that this would not be the case and that you can continue to trade during this difficult time. Of course, if you are worried about solvency you should ensure that you speak with an Insolvency Practitioner as soon as possible. The sooner they are aware of any difficulties that you may be facing the sooner they can step in and support you and your business.

With the government guarantee behind you and your lender’s risk reduced, it enables businesses, which may be declined for financial support from banks due to a lack of security, the ability to access sufficient support during these exceptional times.

Am I Eligible?

In order to apply for a loan under the Business Loan Interruption Scheme, you must be eligible. That is you must:

• be a business – that is a sole trader, freelancer, body corporate, limited partnerships, limited liability partnerships or other legal entity;
• operate your business through a business bank account in the UK;
• have a turnover of no more than £45million per financial year; and
• have a viable borrowing proposal agreed with the bank where it is considered whether the provision of finance will enable the business to trade out of any short-to-medium term difficulty.

The following sectors are not eligible to apply for the Scheme:

• building societies;
• insurers and reinsurers, this does not include insurance brokers;
• the public sector; and
• employer, professional, religious or political membership organisation or trade unions. 

For more information on the Business Interruption Loan Scheme please see blood pressure the government website here. 

More information is also available from the Bank of England here.

If you are considering drawing a loan and would like advice and support on the legal terms and your obligations, please don’t hesitate to contact our Business Services team and we would be happy to assist on 01604 828282 / 01908 660966 or email businessservices@franklins-sols.co.uk.