Caution advised over coronavirus business interruption loans (CBIL)

loan-scheme
The Government has moved fast to launch a Coronavirus Business Interruption Loans Scheme (CBILS), temporarily replacing the Enterprise Finance Guarantee. However caution is advised – in many cases, when business owners have used the Enterprise Finance Guarantee, they have had to stand behind the funding facility by way of personal guarantees.

We need clarity from the Government over whether this will be the case under the revised CBILS as administered through its delivery partners.

In response to recent pressures from business owners, we are encouraged to see announcements by some high street banks that they will not ask for personal guarantees for business interruption loans of up to £250,000. However, there continues to be common misconceptions and lack of a lack of understanding about critical components of how this scheme operates, particularly around the security requirements.

Where are the details?

If a business owner is asked to provide a personal guarantee for a loan under CBILS and the business subsequently fails, which is the stark and very sad inevitability in some of the hardest-hit sectors, the lender could go after their business assets, followed by their personal assets before seeking a claim from the Government to settle the loan.

Our concern is that UK entrepreneurs will in effect be providing a large portion of the £330bn security pledged in favour of their lender.

These measures along with promises to improve the insolvency process and a temporary relaxing of directors’ legal obligations announced just this weekend are positive for small business owners, but greater transparency and education in how the business interruption loan facilities work across all delivery partners is needed.

We must also consider the recent cuts to Entrepreneurs’ Relief announced in the Budget. Therefore, for many, both sides of the risk/reward equilibrium are being tested for UK entrepreneurship.

What small businesses can do instead

No-one could ever have predicted the situation we find ourselves in today. Small businesses are facing serious trading difficulties through no fault of their own. When the going gets tough we have always advised small businesses to follow three basic principles – cut overheads, do more to attract custom and use professional help.

The rule books have changed – custom has simply disappeared overnight for many firms who are now working out the right steps to keep their business afloat and a roof over their heads.

Small businesses need breathing space to cope with the loss of custom and unpaid bills. While we simply don’t know how long this situation is going to continue, a three-month moratorium by lenders on existing loan facilities would be a good start.

In the meantime it is vital businesses remain proactive, get in control of their business finances by creating a real-time and accurate view on the current financial position and upcoming obligations over the next 30, 60, 90 days and thereafter.

Keep up the dialogue

For many businesses, HMRC is a significant recurring creditor with VAT, PAYE, CT and NI contributions. Engage with HMRC if you experience or expect to experience difficulties in repayment. Explain your circumstances and, if necessary, look to agree a Time to Pay arrangement to help ease immediate cash flow concerns.

Keep talking to suppliers and customers who are likely to be in the same position. Constructive, transparent dialogue within the supply chain can help manage expectations and identify a collective way forward.

Review insurance cover and consider whether existing insurance policies potentially provide coverage for loss of business income and protection of personal assets.

While it is unlikely that a claim can be made under business continuity insurance, if businesses already have Personal Guarantee insurance in place, they should ensure they are making the most of the business support services offered to firms in financial distress.

Finally, keep calm and try to avoid emotive decisions – be pragmatic; this is a very uncertain time for many businesses but we will get through it.

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