Coronavirus Business Interruption Loan Scheme - What you need to know

*Update*

Last updated: 06 April 2020

As we expected when we first created this post on 12 March, Government policy and the interpretation of the scheme by the participating lenders is evolving at pace. Here are the latest changes:

• The Government has agreed to cover interest and all lender fees for 12 months
• Loans of less than £250,000 will not require additional security or personal guarantees to be pledged
• Security and guarantees may still be required for larger facilites
• The banks will not have to decide if your business would qualify for a loan on normal banking terms before offering a CBIL
• The maximum qualifying turnover has been increased to £500m
• The maximum loan size has been increased to £25m
• The panel of participating lenders is being expanded from the current 40 with alternative lenders, e.g. asset finance companies, being in the process of submitting applications to join. 

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12 March 2020

With the announcement yesterday that the Government has put an additional £1bn of guaranteed lending behind the Enterprise Finance Guarantee (EFG) scheme as part of its Coronavirus budget, it's a timely opportunity to take another close look at the scheme and explain exactly how it works.

The newly branded Coronavirus Business Interruption Loan Scheme is a welcome step, but it isn't free money for businesses that find themselves cash strapped as a result of coronavirus, and it's important that business owners understand this.

For an overview of the basics of the EFG, take a look at our blog on using the Enterpise Finance Guarantee scheme.

So, what has changed?

Firstly the Government has increased the limit of the guarantee from 75% to 80%. Remember, this is a guarantee to the lender, not the borrower.

Secondly, it has waived the two percent per annum charge, which is currently levied on lenders to fund the scheme and which is typically passed on to borrowers in the form of an arrangement fee.

So far, so good, but it's what doesn't appear to have changed that shows the true impact of this flagship announcement.

The EFG scheme, even under the new format, is only available when you as the business owner have pledged all of your personal assets in support of a personal guarantee for the loan. The good news is that the family home is excluded from this, but the banks are still expected to vigorously pursue repayment under personal guarantees by all other means before they can claim reimbursement from the Government for any shortfall. This can include seeking an Individual Voluntary Arrangment (IVA).

Basically, the Government says that if your business is as strong as you say it is, then you need to provide your own security first. Borrowing beyond your means to stave off what remains an indeterminate crisis, is no more of a good idea now than it ever was. Your business first and then you personally will still be liable to repay the loan before the Government steps in to cover any unrecoverable losses for your lender.

What are your options?

These are very early days and we expect the main lenders to be reviewing their policies and no doubt seeking some clarifaction themselves from Government on exactly what the terms of the guarantee are. The intentions are clearly the right ones and it might just be that some fine-tuning is needed to make sure the policy delivers. We'll be keeping in close touch with the lenders and will provide updates here.

In the meantime, talk to us. Some of our team where involved in the roll out of the original EFG and we're well placed to advise you on whether it, or another means of borrowing, is the right way for you to overcome the cashflow implications of this global pandemic. Seeking a repayment holiday on an existing loan or even moving lenders to take advantage of the base rate cut are options to consider.