By Lyndsey Hall
Banks have been criticised for asking for personal guarantees from business owners when applying for new government-backed loans.
MPs and firms have condemned the behaviour of some banks that are participating in the new Coronavirus Business Interruption Loan Scheme (CBILS) as they are insisting on personal guarantees in order to issue the emergency funds, a decision that means most of the risk is put on the business owner, rather than the bank.
The guarantees mean that the banks could go after the personal property of the owner of a firm if their business goes under and they cannot afford to pay off the debt. The borrower’s main home would be protected, but the bank could seize other assets in order to pay the remaining funds owed. This could include things such as personal savings, shares and holiday homes.
Some believe that this could prevent struggling business owners from making use of the loan scheme, which was put in place specifically to stop businesses from going under during the COVID-19 pandemic.
The British Business Bank has told the 40 lenders participating in the scheme that they have discretion over the security they require from borrowers. However, Stephen Jones, chief executive of UK Finance told BBC Today that no-one borrowing money under the government’s coronavirus loan scheme would be required to use their main private residence as security.
Barclays has told customers they will be required to sign personal guarantees to access the government-backed loans, and HSBC has said it will require a form of personal guarantee for loans over £100,000.
Royal Bank of Scotland, which also owns NatWest, has confirmed it will offer coronavirus business interruption loans without requiring a personal guarantee. Other banks will likely now come under pressure to match RBS’s generous offer.
If you need to access any of the financial support available to businesses during the COVID-19 outbreak, you can get in touch with our dedicated team of advisors and they will talk you through the options and advise you on the best choice for your individual circumstances. Email firstname.lastname@example.org and we will be happy to help you navigate these difficult times.
Visit our COVID-19 Updates page for all the latest news and guidance regarding coronavirus, and for more information on all of the government support available.
IR35 changes postponed for twelve months
Help for businesses during the coronavirus pandemic
Minimising the effects of a pandemic on your business