Coronavirus Business Interruption Loan Scheme – attempts to address inaccessibility

The UK Government has implemented changes to the Coronavirus Business Interruption Loan Scheme in recognition of barriers faced by SMEs attempting to access the scheme.

We previously published a blog on some of the issues facing SMEs when trying to access the Coronavirus Business Interruption Loan Scheme (CBILS). This highlighted some criticisms of participating lending institutions regarding their creating barriers to access e.g. insisting on the provision of personal guarantees for loans under £250,000. Lending institutions were further criticised for asking businesses to pay interest rates of as much as 30%.

Such barriers are demonstrated by the Treasury reporting that only 1,000 businesses have been granted loans under the CBILS, whilst there have been over 130,000 enquiries from businesses regarding loans. The British Chamber of Commerce stated last week that more than half of the country's SMEs were at risk of closing their doors in the absence of such economic relief.

It appears the government has responded to these criticisms through implementing the following changes to the CBILS which apply from 6 April 2020:

• The CBILS will be available to all viable small businesses affected by COVID-19 and not just those unable to secure regular commercial financing
• Lenders are prohibited from requesting personal guarantees for loans under £250,000. For facilities over £250,000 personal guarantees may still be required (at the discretion of the lender) 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
• Operational changes are being made to speed up lending approvals

These will be welcome changes for SMEs whose attempts to secure financing have been frustrated, and hopefully should mean that more businesses are eligible. Although the interest rates that banks can charge have not been capped, last week the Chancellor and the Governor of the Bank of England wrote to banks asking them to support SMEs in any way possible, including by ensuring that interest rates offered to struggling businesses are reasonable and by passing on the benefit of the government guarantee to those borrowing under the CBILS.