14th April 2020

CBILs (Coronavirus Business Interruption Loans) and Guarantees

Pay attention to the independent advice

In what is certainly the most challenging time for businesses since 2008, the government has been quick to announce financial assistance to SMEs on several levels. One of these is the Coronavirus Business Interruption Loan scheme (CBIL). This is directed toward SMEs with a turnover of up to £45m.

One of the early controversies with the CBIL scheme was the requirement that most Lenders were insisting on a personal guarantee (a “PG”). That is, someone, usually a director of the enterprise borrower, guaranteeing the performance of the borrower’s obligations. Concerns were expressed about how this would disproportionately affect smaller businesses and impact he ability to access those loans, the issue was addressed relatively quickly, and most mainstream lenders have agreed not to require a PG where the proposed borrowing is £250,000 or less. This has meant that many more small enterprises are now eligible for the financial support being offered. For loans above £250,000, a PG or PGs may still be required by the lender.

A lender requiring a PG will almost always require the guarantor to take independent legal advice – that is legal advice NOT from the legal advisors acting for the borrowing enterprise in relation to the loan. This is because there might be concerns about duress by a lender and to make certain that a guarantor understands the risks involved in signing up to a PG and how it exposes the guarantor’s personal assets to enforcement action by the bank if a demand is made under the PG.

An independent legal advisor will take a guarantor through the document and advise on the various conditions that are contained in it as well as ensure that it is understood and that the guarantor doesn’t appear to be under any particular duress. In particular, an advisor will discuss the risks to the guarantor’s personal assets if a demand is made under the guarantee, especially where the guarantee contains an indemnity that means that the lender can enforce the PG without exhausting its rights against the borrower enterprise.

While this might be considered a formality by a guarantor in the process of obtaining a CBIL, it is certainly worth paying close attention to the advice and be prepared to ask questions regarding one’s own exposure in what are likely to be difficult times for SMEs. Continuing to be “risk aware” is even more required of guarantors when grappling with all of the challenges the current situation provides for all businesses.

If you require advice regarding a CBIL or any other guarantee, Buss Murton is set up to provide this by use of video communication technology and other means in order to ensure that practical advice can be given at all stages of the loan transaction. Contact us either on the details below, or on 01892 510222 and we’ll be happy to assist.

Alex Lee

Alex Lee