Banks neuter coronavirus business loan scheme<\/p>\n<\/p>\n
UPDATE, 3 April<\/strong> – In response to the criticisms that were being raised about the loan guarantee scheme<\/a> announced in this year\u2019s Budget, the government released new guidance to banks<\/a> this morning relaxing some of the more contentious conditions. As reformatted, CBILS 2.0\u00a0will ease the requirements for\u00a0smaller businesses seeking lending facilities of up to \u00a35m to help them through cashflow disruptions caused by the coronavirus.\u00a0Further details of the scheme will be announced later this month, the Treasury said.<\/p>\n The qualification criteria have been relaxed in the following ways:<\/p>\n * * *<\/p>\n [Original article, published 27 March 2020] <\/em>According to British Business Bank<\/a>, the loans will be provided through one of the 40 CBILS accredited lenders<\/a> only. Already, however, the scheme is coming under fire from accountants and banking critics who say it is just perpetuating the banking sector\u2019s exploitative tendencies when dealing with small business.\u00a0This article examines the underlying criteria and draws on examples of how the scheme is being applied to ask whether the loans are getting through to the businesses that need them.<\/p>\n According to the British Business Bank\u00a0eligibility checklist<\/a>, to qualify for CBILS businesses must:<\/p>\n The ICAEW and British Business Bank provide regularly updated advice<\/a> regarding the scheme to provide help to businesses considering the scheme.\u00a0<\/p>\n The loans are intended to cover term loans, overdrafts, invoice finance and asset finance facilities and come with an 80% government-backed guarantee to boost loan approvals for struggling businesses.<\/p>\n This essentially means the government will cover 80% of any losses, leaving lenders in danger of covering the remaining 20%. What Chancellor Sunak\u2019s speech did not explain was that this \u201cgenerous guarantee\u201d would not prohibit lenders from demanding guarantees from borrowers before agreeing loans.<\/p>\n Keen to avoid exposure to this potential shortfall, lenders may have been asking would-be small business borrowers to prove additional guarantees. Should the borrower fail\u00a0to repay the loan, the lender would pocket the 80% government guarantee and then go after the borrower for their personal guarantee to make good the missing amount.\u00a0<\/p>\n Lloyds Bank explains in its\u00a0application criteria<\/a>\u00a0that businesses will be\u00a0able to borrow up to \u00a3250,000 on an unsecured basis under the CBIL scheme.\u00a0\u00a0However, it emphasises, \u201cThe customer will remain liable for 100% of the debt, including any accumulated interest even if the Government guarantee has paid out.\u201d<\/p>\n Lloyds offers the following example: if a business borrowing \u00a3100,000 over six years under\u00a0CBILS fails with \u00a380,000 still outstanding, the bank will pursue\u00a0the customer for the outstanding debt. After all options are explored\u00a0and \u00a350,000 is reclaimed by the bank from the customer, the government will pay 80% of the outstanding \u00a330,000 under CBILS.\u00a0<\/p>\n The bank then \u201ccontinues to look for the outstanding repayment of \u00a330,000 from the customer.\u201d If the customer is able to pay \u00a320,000, the bank refunds 80% (\u00a316,000) to the government [but] the customer remains liable for the \u00a310,000 still outstanding.\u201d<\/p>\n As AccountingWEB user sb3736 pointed\u00a0out,<\/a> \u201cIf the customer [is] forever liable, whatever happens, then what is the point of having a government guarantee in the first place?\u201d<\/p>\n Rather than supporting struggling businesses, the loan guarantee scheme looks like it is turning into a cosy little safety blanket for big banks.<\/p>\n As\u00a0the\u00a0British Business Bank confirmed<\/a>, ultimately\u00a0\u201cthe lender has the authority to decide whether to offer you finance. If it can do so on normal commercial terms without having to make use of the scheme, it will.\u201d\u00a0 This clearly allows lenders to interpret the terms of this scheme at will, or reject it altogether.<\/p>\n However, British Business Bank\u00a0also stipulate<\/a>d, \u201cThe Big Four banks have agreed not [to] take personal guarantees as security for lending below \u00a3250,000. If one lender turns you down, you can still approach other lenders within the scheme.\u201d<\/p>\n Unfortunately, reports from the field indicate that some of these banks are still asking for personal guarantees.<\/p>\n Accountants including\u00a0Carl London<\/a>\u00a0have had issues with the scheme. \u201cBarclays offered a loan to my client’s business but asked for 100% personal guarantees!\u00a0What is the point in them being 80% government backed if the banks ask for 100% PGs?!\u201d<\/p>\n AccountingWEB contacted Barclays about this complaint, and received the following response: \u201cWe are not asking for 100% guarantees on CBILS. [To] get funds out to businesses as quickly as possible, we have removed the need for a personal guarantee if the loan amount is less than \u00a3250,000.\u201d\u00a0<\/p>\n Barclays, along with\u00a0 RBS, Lloyds Banking Group, Virgin Money and HSBC all pledged to not request personal guarantees on CBILS loans up to \u00a3250,000, yet the evidence is stacking up of ambiguous interpretations of the scheme criteria. The BBC reported<\/a>: \u201cBarclays has told customers they will be required to sign personal guarantees to access the government-supported emergency finance.\u201d<\/p>\n Small Businesses<\/a>\u00a0also cited cases where Barclays \u201chad been asking small businesses for personal CBILS guarantees.\u201d<\/p>\n According to Barclays, it is now basing its lending decisions on whether the applicant was able to afford a loan in 2019, rather than using future earning projections to assess whether they will be able to pay back the loan.\u00a0<\/p>\n Barclays has also apologised for quoting interest rates of up to 12% for CBILS when BoE rates have been at record lows\u00a0and told\u00a0Small Businesses<\/a>\u00a0it would be \u201creviewing applications to \u2018ensure no errors are made\u2019 and said no successful applicant would have to pay more than 5% for a CBIL.\u201d<\/p>\n AccountingWEB member Meadowsaw227 complained that\u00a0clients \u201care finding it virtually impossible to get through to Barclays – 4 hour wait and then being cut off.\u201d<\/p>\n Adding to the weeks or months experts have said the loans could take, it appears that access to CBILS is a moot point for those unable to even make inquiries.<\/p>\n Perhaps the banks\u2019 behaviour on personal guarantees stems from the insistence that businesses seeking support under the scheme explore all other options for finance first?<\/p>\n\n
Who is eligible?\u00a0<\/strong><\/h3>\n
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Who is exempt?<\/strong><\/h3>\n
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Nature of the guarantees<\/h3>\n
Application of CBILS in context<\/strong><\/h3>\n
Behaving like sharks<\/strong><\/h3>\n
Barclays position on\u00a0CBILS\u00a0<\/strong><\/h3>\n
NatWest avoids CBILS\u00a0<\/strong><\/h3>\n