Banks pushed to waive personal guarantees for SME coronavirus loans

The British government is pushing for an industry-wide agreement with banks to waive the need for small companies to provide personal guarantees to access state-backed bailout loans of less than £250,000.

Some small companies facing collapse because of the pandemic complained that they were being asked to pledge personal guarantees that could lead to the loss of property such as savings and shares before the government’s promise to cover 80 per cent of the debt was triggered. 

Most of the UK’s larger banks have now agreed not to demand personal guarantees under the coronavirus business interruption loan scheme, or CBILS, following widespread concern over the risks involved for company owners in the wake of the programme’s launch last week. But not all lenders have announced that they will drop the requirement. 

Rishi Sunak, the chancellor, last week pledged to give interest free loans of up to £5m to companies with revenue of less than £45m to help them weather the coronavirus outbreak, with the government guaranteeing banks up to 80 per cent of the value of what was borrowed.

Treasury officials say they expect the 40 or so lenders who applied to join the scheme to drop the demand for personal guarantees. One said: “Every day we have made clear what our expectations are concerning what the guarantees should mean.”

Talks over the personal guarantees are part of a broader discussion with the banks about making changes to the programme.

“The scheme was set up in less than a week, so there were always going to be some teething problems,” said one government official. 

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Treasury sources said the take-up of loans under the scheme was getting “better every day”, although borrowers complain they face long delays to access the money. 

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Royal Bank of Scotland and Lloyds Banking Group have both said they will not seek personal guarantees for firms affected by the pandemic, even if they weren’t applying for loans under the scheme.

RBS, the country’s largest business lender, also said it would decrease the minimum size of loans to be included in the programme from £25,000 to £5,000 to open CBILS up to more small companies and sole traders.

Mr Sunak is understood to have personally urged lenders to make sure credit was getting through. In a joint letter to banks last week, the chancellor and Andrew Bailey, the Bank of England governor, wrote that the banks’ co-operation would “be critical in getting support to where it is most needed”.

Banks are also examining whether to make all businesses with a turnover of less than £45m eligible for CBILS — currently, firms can only apply if they have no other means of raising loans. 

The Institute of Directors, which is charged with promoting good corporate governance across British business, called for all lenders to drop the requirements for personal guarantees when lending to SMEs under the CBILS.

A poll of members by the IoD this week showed that 40 per cent had so far contacted their bank about an emergency loan, while a slightly higher percentage had contacted HM Revenue & Customs to defer tax payments.

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On Tuesday, two groups of MPs called on the government to force all banks in the scheme to drop the requirement for personal guarantees and to extend the loans to smaller companies. 

The all-party parliamentary groups on fair business banking and mortgage prisoners also asked the Treasury and the BoE to introduce a scheme that would include challenger banks specialising in lending to SMEs, such as OakNorth and Aldermore, which were not included in the initial programme.



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