CBILs and Lenders’ Requirements
As a response to the Coronavirus crisis which we currently face, the UK government has announced a scheme of coronavirus business interruption loans (CBILs) as a means to protect businesses throughout the ongoing shutdown and go some way to alleviating the operational and commercial difficulties which many businesses currently face.
These CBILs range from the modest figure of £25,000 all the way up to facilities of £5m. The scheme is being overseen by the British Business Bank via its accredited lenders, of which there are over 40 such institutions including traditional high street banks, challenger banks, asset-based lenders and smaller specialist institutions. The scheme provides the lender with a government-backed partial (80%) guarantee against the outstanding facility balance.
A key issue which has quickly arisen in the offering of these CBILs is the differing requirements of the accredited lenders rolling out the CBIL schemes on behalf of the British Business Bank. Of key concern to many proposed borrowers are the additional (and personal) security requirements some lenders have indicated may be required to avail of the CBIL funding. Some institutions have indicated that personal guarantees may be required as an additional security requirement to underpin the facility which the individual lender is providing to a borrower.
Generally, a guarantee is a standard and fairly common form of credit support in financing transactions and fundamentally is an assurance by the guarantor to pay some or all of the facility provided to the borrower. The difficulty which many borrowers (and proposed guarantors) face at this time is the uncertainty surrounding when we will return to business as usual and therefore the difficulty in providing an underpinning form of security which will allow a lender to seek to enforce against the personal guarantor in the first instance. Given also that the government has agreed to guarantee 80% of what a borrower obtains from a lender, the provisions of a personal guarantee significantly shifts the burden of risk from the lending institution and the government to the borrower and, in particular, to the personal guarantor – as under the guarantee, the personal guarantor will be liable to pay in the first instance. Therefore, careful consideration should be given to the suitability of providing a personal guarantee in these circumstances.
Nevertheless, the provision of additional security like a personal guarantee is not currently an industry wide requirement. Therefore, the prudent borrower may wish to look beyond their existing lender to seek to avail of better terms in the market. Should such terms not be available to a borrower, as is noted above, careful consideration should be given to providing a personal guarantee and a guarantor’s ability to repay any funding received.
Please note this is a brief overview of the issues arising out of the CBIL scheme. Given the ever evolving nature of this scheme, specific legal advice should be sought on any specific queries required from a professional advisor. If you require further information or advice, please contact kevin.mcveigh@edglegal.com or cathy.murphy@edglegal.com and we will be happy to assist.
