Chancellor to grill bank CEOs, after revamping business loan support scheme

On announcing the revamped and extended support measures, Rishi Sunak said he will speak to CEOs next week to discuss how the schemes are working and “ensure everybody is playing their part.”

The chancellor is extending the Coronavirus Business Interruption Loan Scheme (CBILS) so that all viable small businesses affected by COVID-19, and not just those unable to secure regular commercial financing, will now be eligible to access the funds.

The government is also stopping lenders from requesting personal guarantees for loans under £250,000 and making operational changes to speed up loan approvals. The government will continue to cover the first 12 months of interest and fees.

The Treasury, the FCA and the Bank of England fired warning shots to lenders last week over their tactics and criteria for business interruption loans, after it emerged some were seeking personal guarantees as security.

Amid reports that some borrowers were being quoted up to 30 percent interest, banks were warned to ensure interest rates offered to struggling businesses were reasonable and passed on the benefit of the government guarantee.

The changes to the CBILS were:

• Lenders being banned from requesting personal guarantees on loans under £250,000;
• The current scheme being extended for small businesses to benefit;
• A new scheme opening to bolster support for firms not currently eligible for loans.

More than £90m of loans to nearly 1,000 SMEs have been approved under the CBILS since its launch at the end of March.

Another government-backed scheme to provide financing to larger companies, operated by the Bank of England, has also provided almost £1.9bn of support to firms and a further £1.6bn has been committed.

How it will work

The new scheme for larger firms will involve a government guarantee of 80 percent to enable banks to issue loans of up to £25m to firms with an annual turnover of between £45m and £500 million.

This, the chancellor said, will give banks the confidence to lend to more businesses which are impacted by coronavirus but which they would not lend to without the scheme.

Loans backed by a guarantee under the support for larger firms will be offered at commercial rates of interest and further details of the scheme will be announced later this month.

Sunak added: “We are making great progress on getting much-needed support out to businesses to help manage their cashflows during this difficult time – with millions of pounds of loans and finance being provided to hundreds of firms across the country.

"And now I am taking further action by extending our generous loan scheme so even more businesses can benefit. We have also listened to the concerns of some larger businesses affected by COVID-19 and are announcing new support so they can benefit too.

“This is a national effort and we’ll continue to work with the financial services sector to ensure that the £330 billion of government support, through loans and guarantees, reaches as many businesses in need as possible."

There have now been over 130,000 enquiries from businesses across the country for business interruption loans, according to latest figures from UK Finance. Some 983 businesses have had finance approved, while banks are processing thousands of loan applications.

The first firms to receive business interruption loans included Hartlepool-based H.T.E.S (Northern), which provides training and assessment services to the engineering, petrochemical and construction sectors. This company received a £60,000 loan backed by the scheme, enabling it to continue to operate, even though sales have dropped by 75 percent.

Brian Goodlad, director of H.T.E.S (Northern), said: "We have seen a significant drop in sales following the start of the coronavirus outbreak. The CBILS support provided by Business Enterprise Fund provides a boost to our cashflow which ensures certainty and stability in very difficult circumstances.

"It is an important lifeline that will help us survive and safeguard 15 full and part-time jobs."

For loans over £250,000, personal guarantees will be limited to just 20 percent of any amount outstanding on the CBILS lending after any other recoveries from business assets.

Lenders were already prohibited from asking business owners to put their house on the line, but the changes, according to the Treasury, will provide further reassurance regarding personal assets.

This will apply to finance already offered under the scheme, to ensure all business owners receive the same level of government protection.