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I am tabling this statement for the benefit of Honourable and Right Honourable Members to bring to their attention the changes we have made to the Coronavirus Business Interruption Loan Scheme and the Coronavirus Large Business Interruption Loan Scheme so that more businesses can access the finance they need.
The Coronavirus Business Interruption Loan Scheme was launched on 23 March and is facilitated by the Government-owned British Business Bank and delivered through its delivery partners. Lenders offer loans of up to £5 million to support small and medium sized businesses with a turnover up to £45 million that are affected by the coronavirus outbreak.
The Coronavirus Large Business Interruption Loan Scheme was launched on 20 April. Lenders can offer loans of up to £50 million to support viable businesses with a turnover of £45 million and above that are affected by the coronavirus outbreak.
On 3 April we announced changes to the CBILS scheme. The first change was to the use of personal guarantees under the scheme. Since the launch of CBILS, lenders had been permitted, but not obliged, to require a personal guarantee from businesses for loans of any size provided through CBILS. Lenders were never and will never be permitted under any circumstances to use business directors’ or their families’ principal residence as security. We made changes to the use of personal guarantees through the scheme to provide further reassurance regarding personal assets during this difficult time.
The largest CBILS lenders had already confirmed, on a voluntary basis, that they would not require personal guarantees for CBILS loans under £250,000. The changes we made to the terms of the scheme mean that no lender will be permitted to require a personal guarantee for loans or other CBILS facilities under £250,000.
For CBILS loans over £250,000, lenders are still permitted to require a personal guarantee, although under no circumstances may they use primary personal residences for this. Upon launch, in the event of a default, lenders were previously expected to seek to recover the loss from business assets and then using any personal guarantees. Only when these had been exhausted were they permitted to claim the residual loss under the guarantee agreement. We made changes to these terms so that lenders may now only look to the personal guarantee for a maximum of 20 per cent of the remaining debt before claiming 80 per cent of the residual loss under the guarantee agreement.
The second change concerned the requirements businesses had to meet to access CBILS. At launch, CBILS was designed to support SMEs unable to secure finance on commercial terms. Because CBILS was only available to companies that could not otherwise secure a debt facility, it meant that preferable terms, such as the government’s coverage of initial interest payments, were unavailable to those businesses that were able to secure facilities on commercial terms.
We therefore removed this requirement, meaning CBILS can now support lending to smaller businesses even where they could have secured a loan on commercial terms. This means that in addition to meeting company size and sectoral restrictions, the only other requirement for businesses is to be able to demonstrate they have been adversely affected by Covid-19 and for lenders to judge that the business is viable. This means that more businesses affected by the outbreak will be able to benefit from a CBILS facility and the government’s 12-month Business Interruption Payment and resulting lower initial repayments.
On 27 April, we announced further changes to the scheme. The cap on gross Government liability at the level of the lender’s whole CBILS portfolio has now been removed. Previously the Government’s gross liability was capped at 75 per cent of losses across the lender’s whole CBILS portfolio. Removing the portfolio cap therefore gives lenders an 80 per cent guarantee across all CBILS lending. This change should provide further confidence to lenders to support the timely supply of finance to businesses.
We are also removing the ‘forward looking’ element of the viability test. The current economic uncertainty means that many businesses are having difficulties providing cashflow forecasts, which is slowing down some lending decisions. Allowing lenders to base lending decisions purely on an assessment of business liability pre Covid-19 removes the requirement for lenders to ask for evidence of future cashflow, thereby speeding up lending decisions.
Finally, charities and Further Education colleges need no longer show that at least 50 per cent of their income comes from trading to be eligible for both CBILS and CLBILS loans. In practice, this requirement precluded a large number of organisations in these sectors from accessing support through these schemes, and its removal will support these organisations to access both schemes.
The removal of the portfolio cap increases the statutory contingent liability of the CBILS scheme, and I will be laying an updated Departmental Minute today containing a description of that revised liability undertaken. The other changes do not impact the statutory contingent liability of the CBILS scheme.
The removal of the requirement for at least 50 per cent of the income of charities and Further Education colleges to come from trading to be eligible for CLBILS also does not impact the statutory contingent liability of the CLBILS scheme.
For more information on this and other support for business, please go to https://www.businesssupport.gov.uk/