DMA and Partners Change Big Banks' Position on Owner Personal Guarantees for CBILS
30 Mar 2020
As part of the Government's rafts of measures to aid the economy through the coronavirus outbreak, the Government last week announced a Coronavirus Business Interruption Loan Scheme, which allowed SME's to claim a loan of up to £5m with 80% Government backing.
In theory, this would provide the many thousands of small- and medium-sized businesses across the UK with cashflow to make up for decimated revenues during the coronavirus outbreak.
However, dozens of DMA businesses reported issues with banks—chiefly Lloyds, Barclays and HSBC—who were either pushing high-interest commercial alternatives or demanding owners of the businesses to give personal guarantees to the loan, in spite of the government backing. While most understood that 'Government backing of 80%' meant the Government would cover 80% of any outstanding repayments to the bank if a business goes into insolvency, banks were interpreting this to mean that the Government would fund 80% of whatever the banks could not reclaim back from business owners in capital and assets after insolvency.
While owners of businesses ordinarily would be happy to take whatever measures they could to keep their businesses running and employees on the payroll, for most, being asked to put their own resources—often their own homes—on the line was too great a risk in the present economic environment.
Consequently, a huge number of SMEs were stuck between a rock and a hard place between risking their livelihoods and going into insolvency.
Having heard from a great number of DMA members about this issue, on Thursday and Friday the DMA and other partners fed back on this issue to the Government, including writing to the Chancellor of the Exchequer, Rishi Sunak.
DMA CEO Chris Combemale said:
“None of the SME member businesses that we’ve spoken to would be able to accept a loan on the terms banks are currently offering. Instead, many would be forced to choose insolvency, leading to the loss of tens of thousands of jobs across the UK’s data and marketing industry. We are calling on banks and the Government to see sense and work collectively to ensure that this does not happen by removing the need for SME owners to provide personal guarantees for these loans.”
The DMA was pleased, therefore, to hear on Friday afternoon that the big 4 banks have removed their requirements for personal liabilities in issuing a Coronavirus Business Interruption Loan of up to £250k.
Nonetheless, the CBILS loans are available for up to sums of £5m. As of yet, the requirement of personal liability still exists for loans of between £250k-£5m. the DMA will again be on calls with both DCMS and BEIS to push for liability to be removed altogether and not just for loans of £250k and under. Similarly, we will push for more than the main banks to offer guarantee-free loans, as this will be necessary for businesses to access a wide range of choice of loans to access funds to keep themselves afloat. Businesses will need as much help as possible going forward, especially if the isolation period lasts as long as some health advisors are predicting.
Equally, as noted above, there remain other issues with the manner in which banks are offering the loans, such as pushing high-interest commercial alternatives or setting high-interest rates after the 12-month period which the Government is responsible for paying interest.
Going forward the DMA will continue to work this week with its members and the Government to make sure members can access the necessary cash to keep their businesses going throughout this time. To help us give the best picture to the government and the banks, and to let us know how best we can help you through this time, please fill in the DMA's coronavirus survey and share it with your contacts in the industry.
For information on the schemes announced by the Government for businesses, click here.