Government revamps emergency lending to coronavirus-hit businesses

Following widespread criticism, the Chancellor has today (3 April) announced a new emergency loan scheme for businesses with turnover greater than £45m and strengthened the finance facility available to smaller businesses.
 
The move follows concerns, in line with our own experience, that businesses of all sizes were struggling to access the government-backed funding, with more than 130,000 loan enquires received from firms but fewer than 1,000 had been approved. 
 
New Coronavirus Large Business Interruption Loan Scheme (CLBILS) launched
The Chancellor has launched a new Coronavirus Large Business Interruption Loan Scheme (CLBILS) to the so-called ‘squeezed middle’ of mid-sized companies that were excluded from the previous lending measures.
 
CLBILS will provide a government guarantee of 80% to enable banks to make loans of up to £25 million to businesses with an annual turnover of between £45 million and £500 million. CLBILS lending will be offered ‘at commercial rates of interest’, with further details to be announced later this month.
 
Revamp of the Coronavirus Business Interruption Loan Scheme (CBILS)
The Chancellor is extending the Coronavirus Business Interruption Loan Scheme (CBILS), which was launched at the end of March.  
 
As a result, ‘all viable small businesses affected by COVID-19’ will now be eligible for funding under the scheme - not just those unable to secure regular commercial financing.  In practice, this means that borrowers will no longer have to first try to secure a normal commercial loan elsewhere. This is an important change: many of the businesses we have been helping have complained that they were being forced to approach alternative lenders who were not part of CBILS and were therefore unable to benefit from the Scheme.
 
Lenders will now be prevented from requesting personal guarantees for loans under £250,000, and operational changes are being made to speed up lending approvals. We will announce the details of those operational changes and what they mean in practice over the coming days. Importantly, for loans over £250,000, personal liability under personal guarantees will be limited to just 20% of any amount outstanding on the CBILS lending after any other recoveries from business assets. 
 
The government will continue to cover the first twelve months of interest and fees.
 
These latest developments are welcome news.  Our experience of helping clients secure funding has revealed a number of frustrations with CBILS - particularly around the need to have tried to secure funding on normal commercial terms first, the requirement for personal guarantees, and the risk that interest rates could rise significantly once the government-backing is removed after 12 months.  The Chancellor has now addressed the first two issues and, with the promise of further talks between the Treasury and the banks, we hope that the third concern will be resolved in the coming days.
 
We will be covering this in more details at our forthcoming live and interactive webinar on Wednesday 8 April.
 
For more information about business funding and restructuring options, please contact Stephen Goderski (sgoderski@pkf-littlejohn.com; +44 (0)207 495 1100) or Peter Hart (phart@pkf-littlejohn.com; ++44 (0)207 495 1100).
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