There seems to be a lot of confusion out there in terms of how the banks are supporting SME’s funding requests during the COVID-19 crisis, and in particular the Coronavirus Business Interruption Loan Scheme (CBILS).
Although the CBILS is funded by the British Bank, in almost all circumstances borrowers are being advised to contact their current bank in the first instance.
Lending requests seem to be being approached in the following order:
1) The bank would firstly ask themselves whether they would normally support the lend. So, if for example the request is from a company that produces hand sanitiser and they want a loan for a new warehouse and everything ‘stacks up’ then they would do the lend on a normal basis.
2) Secondly, if the request for support is as a result of the impact of COVID-19 on the business, they would look to do it out of their own Emergency COVID-19 Special Fund in the first instance. If the loan ‘stacks up’ in terms of serviceability, security, guarantees etc then they would provide a normal facility. They wouldn’t charge a fee but normal interest would be charged. If the advance is a loan then the borrower could ask for an instant capital repayment holiday on the repayment which is likely to be granted.
3) Finally, if all the criteria in 2 (above) are present, apart from the security, then the bank will go down the CBILS route. No loan fee is charged and any borrowing is interest free in the first 12 months. It’s important to remember that the maximum term of the loan under this scheme is 6 years, so this might not be the right route to go if serviceability is an issue. Like the Enterprise Finance Guarantee (EFG) loan scheme, under the CBIL scheme there cannot be a charge over a private residence. Whether the bank take a Personal Guarantee or not isn’t clear. From information gathered, it seems Barclays and HSBC do want PG’s and there seems to be mixed messages coming out of RBS.
If you have any concerns about the effect of COVID-19 on your business and would like to find out more about the Coronavirus Business Interruption Loan Scheme, please contact us to discuss your specific needs.