One of the government’s flagship schemes to protect UK businesses, the Coronavirus Business Interruption Loan Scheme (CBILS), has been in the spotlight again in the last few days. There has been increasing frustration from businesses and the government with the banks, culminating in a statement by the Business Secretary Alok Sharma that: “it would be completely unacceptable if any banks were unfairly refusing funds to good businesses in financial difficulty”.
It was announced yesterday evening that today (Friday 3rd of April 2020), the Chancellor Rishi Sunak will amend the scheme to address these frustrations. The CBILS will be “extended” to include all viable small businesses affected by COVID-19 and not just those unable to secure regular commercial finance due to a perceived lack of security. This tweak is designed to unblock the logjam created by the initial CBILS wording that required the banks to use its normal lending criteria. In addition banks participating in the scheme are not permitted to seek personal guarantees for facilities under £250,000, previously only the big four banks had agreed to not seek PGs for facilities under £250,000.
Briefly the CBILS is a government scheme to guarantee business loan facilities up to £5m. The government will also cover interest and fees in respect of the facilities for the first 12 months. The purpose of the scheme is to allow banks to lend to businesses with the additional protection of the Government guarantee, therefore making businesses acceptable to lenders. For more detail on the CBILS please see the link to our recent update on the subject at the bottom of this article.
The CBILS previously required borrowers to go through the bank’s usual application process, and in many cases would result in the borrower being offered a standard loan product rather than a loan under the CBILS, we will see if the Chancellor’s tweaks to the scheme will change that.
In either case a borrower will need to satisfy the bank’s conditions precedent to the loan, which will include entering into facility agreements, security and guarantee documents (including personal guarantees for facilities over £250k) and providing corporate authority documents such as board resolutions and directors’ certificates.
These can be complex legal documents and have long term consequences for your business if they are not drafted and negotiated correctly. Whilst in the current circumstances it may feel that the most important thing is to have the loan facilities in place, it’s also important that the documents which are signed up don’t have a negative impact on your business in the longer term.
As an example we regularly see draft facility agreements which allow a bank to call in what is meant to be a committed loan facility whenever they like, even if the borrower is in full compliance, personal guarantees with no effective limit on liability, and security documents which create security over assets which are not meant to form part of the security package or are charged to other lenders. Most of these issues can usually be resolved if they are picked up at the negotiation stage, but can create serious issues in the future if they are not.
Ellisons has significant expertise in providing legal advice to borrowers and assisting in meeting these requirements. The Ellisons’ Banking and Finance team act for a wide range of borrowers and lenders on corporate loan facilities, property financing and alternative products, and regularly advise on financing transactions from £500,000 or less up to £50 million in value.
For more detail on the CBILS please refer to this article, please note that since that article was drafted the following amendments to the CBILS have taken effect in addition to those noted above: the government will cover the first twelve months’ interest, rather than 6 months’ interest and the turnover cap for applicants has been increased from £41m to £45m.