Government need to give more clarity on CBILS
Rangewell, the business finance specialists have been monitoring the Coronavirus Business Interruption Loan Scheme (CBILS), which was launched by the British Business Bank yesterday. After speaking to banks and to the firms Rangewell has listed their assessment.
The first is that CBILS is based on the foundation of EFG Loan Scheme, a programme Rangewell’s financial experts saw the frustrations first hand when they worked for their respected banks during the last crises.
Does the business remain liable for the full amount borrowed?
Yes – both the Scheme’s details and individual lenders have been clear that “The borrower always remains 100% liable for the debt”
As things stand currently – from a legal point of view, lenders would not be able to claim any recompense from the government unless they had made every effort to reclaim the money from the business – possibly to the extent of pushing businesses into liquidation or seeking bankruptcy orders against directors.
Rangewell are calling on the government to give more clarity on this immediately – Business owners are already facing unprecedented levels of stress and anxiety as they fight to save their businesses without having to worry about being made bankrupt at some point in the future.
What security will lenders be looking for?
The scheme allows lenders to make unsecured lending up to a maximum of £250,000. In reality, we expect many lenders to seek personal guarantees and / or security if it is available.
- Rangewell believes that the level and types of security required by lenders will be one of the main differentiators between different lenders and borrowers should pay close attention to what is being requested.
How will lenders consider that proposals are viable and are eligible for lending?
The rule of thumb that we’re seeing so far is lenders asking “would we have lent to this customer last year”?
- This will not always bode well for borrowers in sectors that have never been popular with lenders (eg. retail and hospitality) or those cash-based businesses that may have “under-declared” profits.
Who will the bank prioritise?
Rangewell are seeing clear signs from lenders that they will be focusing on the current business borrowers who need support. This is to be expected given the level of demand that they are seeing.
How quickly can the banks act?
The banks are working as quickly as they can to understand and administer complex new guidance from the government – every lender we have spoken to have had large teams working on this throughout the weekend.
So far, most lenders are telling Rangewell:
- Borrowing requests via the scheme will have to be credit-approved in the normal way with the usual paperwork supplied.
- They are NOT increasing the credit approval limits of individual managers.
Given this, Rangewell would suggest that borrowers should expect the process to take 4 – 6 weeks, although we are sure that lenders will make every effort to expedite urgent cases. On a positive note, we have heard from lenders that they will not always require security changes being fully registered at Land Registry prior to releasing funds.
Josh Mendez, one of Rangewell’s finance experts who has 15 years’ high street banking experience said:
“The CBILS scheme is based on the EFG loan program we saw during the financial crisis a decade ago. I know from my time working for a bank during the last crisis is there are many failing in how EFG worked and it seems to me that CBILS has exactly the same shortcomings”.
“One of the more worrying things about CBILS is that if a bank were to claim any recompense from the government, they will have to make every effort to reclaim the money from the business, and this may include pushing the firm into liquidation or seeking bankruptcy orders against directors”.
“Rangewell is calling on the government to give more clarity on this immediately. Business owners are already facing unprecedented levels of stress and anxiety as they fight to save their businesses without having to worry about being made bankrupt at some point in the future”.
“History shows that, with all schemes like this, the devil is in the detail and we should beware of unintended consequences. The Government needs to ensure that otherwise healthy businesses unable to offer security or those in historically “difficult to borrow” sectors don’t get passed over as lenders deal with an unprecedented level of borrower enquiries.”
Below, are two pro-bono projects Rangewell have put together on business lenders for prospective borrowers and current borrowers.
- Lender Support – the comprehensive list of all lenders position to current borrowers, the direct number to call to discuss their loan and what information it would be useful to have at hand.
- Lender Pulse– the rolling report of the credit appetite of UK SME lenders to prospective borrowers who are looking for funding.
