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Author: Douglas-Jones Mercer
Date: 06 April 2020
One of the first forms of financial assistance offered by the Government was guaranteed loans to be made available through the British Business Bank. We now have more information about how these loans will work, and who is eligible. A summary of the facts we know are as follows:
• The British Business Bank operates through more than 40 lenders which consists of a mixture of high street banks, asset-based lenders and challenger banks.
• The maximum facility available is £5 million on repayment terms of up to 6 years. This can be made available by way of term loan, overdraft and invoice or asset finance (overdrafts and invoice finance facilities have 3-year terms instead of 6).
• The government will partially guarantee the outstanding balance and will make a Business Interruption Payment to cover the first year of interest payments and lender’s fees, meaning no upfront costs and lower initial repayments.
• Importantly, personal guarantees will not be needed for facilities under £250,000. Lenders may ask for them for amounts over £250,000 but principal private residences are excluded and recoveries under personal guarantees are capped at 20% of the outstanding balance, after using the business assets to recover as much as possible.
• Even if the lender considers the business to have sufficient security, the Scheme can still be utilised (although a lender may well take both the security and the guarantee under the Scheme).
The announcement comes after complaints during the recent weeks that many small businesses were being turned away by lenders because they didn’t meet ‘lending requirements’ or have satisfactory balance sheets. In a briefing this week, Business Secretary Alok Sharma said this was unacceptable and said that after tax-payers rescued banks in the financial crash, it is now time for banks to ‘return the favour’ to the tax payer.
The Coronavirus Business Interruption Loan Scheme will be operation from 6 April 2020. The scheme will initially run for 6 months, and these changes should be applied retrospectively from 23 March 2020.
There are still concerns that guarantees are available to the lender, but ultimately the borrower is still responsible for the amount borrowed under the scheme.
To be eligible for the scheme, business must be based in the UK, have an annual turnover of no more than £45 million (if your business is part of a group, this limit applies to the entire group), have a borrowing proposal which a lender would find viable were it not for coronavirus and self-certify that the business has been adversely affected by coronavirus.
If a business’s annual turnover is over £45 million, it may be eligible for the Coronavirus Large Business Interruption Loan Scheme. The government guarantee will be for 80% of the loan, which could be up to £25 million for businesses with annual turnover of between £45 million and £500 million.
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