Business Interruption Loan Scheme
Rishi Sunak, Chancellor of the Exchequer, has been talking today about the billions of pounds of support on offer to UK businesses. Here’s what our brokers are saying about the Business Interruption Loan Scheme and the capacity to borrow.
The Business Interruption Loan Scheme
You may have seen the news article blasting the bank’s response to the CBIL scheme. Despite 80% of the loan being government backed the 40 lenders capable of providing funding under the scheme are still requiring directors to personally guarantee the loans. At the time of writing this RBS remains the only exception.
One of our brokers disclosed to us that they had seen their first “indicative offer” from a bank under the CBIL scheme and whilst the first twelve months were interest-free, the second year came with an APR of 30% and a personal guarantee.
In a time of uncertainty, where government policy has created an economic crisis, the future of any small business cannot be guaranteed and these offers are tantamount to no offer at all, they are designed to ensure they get declined and business owners are being forced to make a decision:
Do they want to be made bankrupt by the virus or the cure?
Moreover, lenders are indicating that the funds for anyone qualifying for a business interruption loan will not be made available for several months and so it will not be the immediate solution to the immediate problem many were hoping for or that the government indicated it would be. Instead, businesses will be forced to take on short-term debt which could prove difficult to refinance.
In addition, the lenders are tightening up the qualifying criteria and brokers will not entertain applications for businesses that are not / were not profitable or at least tracking toward profitability with at least one year of statutory accounts but preferably three.
Many people are being offered alternative commercial products. The government’s rhetoric and polished press conferences have unfortunately fallen upon obstinate ears and although it might be petulant and ill-informed to draw the comparison one cannot help but be reminded of the 2008 crash when the taxpayers, the hard-working entrepreneurs and workers of the UK bailed the banks out of a crisis that they were at least partly responsible for.
What about the other 330 lenders in the UK?
These lenders are also bracing themselves, with most lenders completely exiting entire sectors including:
- Hospitality and catering
- Travel
- Leisure
- Advertising
- Bars, restaurants, pubs and hotels
- Market stalls
- Event companies
The chief concern amongst these lenders is that the CBILs lenders will cherry-pick the most secure companies to lend to, leaving a subprime clientele for them. This is causing them to tighten controls and request more documentation and make affordability and security the key qualifying criteria with higher burdens upon each. As a result, lenders are moving away from unsecured lending backed by personal guarantees to fully secured offers.
Our Advice
We have made dozens of applications for loans this week alone and it seems like the shifting sands of the market will require us to begin again. Our advice to anyone looking for funding is to have your records ready to go and those records should include the following:
- 3 years statutory accounts where available
- 12 months of business bank statements
- 6 months’ personal bank statements
- An up-to-date management report
- An up-to-date aged receivables and aged payables report
- A personal income and expense sheet
- A personal statement of affairs listing all assets and corresponding liabilities.
Linford Grey is of course ready to dig deep and act quickly for all our clients interested in securing funding but it will not be quick. It will not be easy. No one should consider the Business Interruption Loan Scheme Free Money.