The Coronavirus: Unprecedented times: How can the Government help our SME’s?
Please note: This article was written in line with developments up to and including 5pm on 25th March 2020. The information it is based on is subject to change. Therefore please contact one of our company commercial team on 01752 203500 or email james.peterson@gasolicitors for the latest position.
The UK Government has announced the launch of its Coronavirus Business Interruption Loan Scheme (CBILS), replacing the existing Enterprise Finance Guarantee for small and medium enterprises, and is setting aside a minimum of £1.2billion under this scheme alone to save our industries in this time of crisis. But, what does this really mean?
It has been quite a week with the Government announcing its tighter restrictions on Monday and clearer guidance beginning to trickle through. My colleagues and I are continuing to work remotely and are contactable as usual. If you are concerned or would like a chat about the impact of Covid-19 on your business, including assistance in restructuring, share or asset sales, or securing mortgages or finance, please reach out to us.
Here is a snapshot of some of the key points we know so far. (Please note that this guidance is subject to change (as is everything at the moment it seems!).
- Under the new CBILS, UK SME’s can apply to seek relief in the form of a loan, overdraft, invoice or asset finance, with terms ranging from 3 months to 6 years. Loans are planned to be delivered with interest rates similar to current bank lending.
- Eligibility criteria applies. The business must be UK based in its business activity with a maximum annual turnover of £45million and must have a borrowing proposal which would be considered “usual” in “usual circumstances” and reasonable to assist with the short-medium term difficulty. The advice states that applying for the loan will take approximately 4-6 weeks but will this vary once we have a clearer understanding of how many businesses may actually seek the relief?
- The relief, capped at up to £5million per business*, will be partially guaranteed by the Government for up to 80% of the loan value to the lender** but the borrower will remain 100% liable for the debt. In addition to CBILS the Government is offering a Business Interruption Payment to cover the first 12 months of interest payments and fees for some borrowers. All of this is positive news during this pandemic and will certainly act as a lifeline for many facing financial difficulties right now, but how might this affect business in the future and how quickly can the cash reach our businesses?
- At the discretion of the lender unsecured lending for facilities of up to £250,000. Borrowing over this amount will require the borrower to provide evidence that no security is available (residential properties are not to be used as security) with lenders asking if the business can borrow on normal financial terms instead.
- With the Government guaranteeing the loans, how will this impact our lenders? The British Business Bank states that in the event of a default, lenders will be prevented from claiming compensation until they have taken every possible step to recover payment from the borrower. Does this mean lenders will be stricter on repayment terms? Will they be quicker to force businesses into liquidation if they cannot meet the terms of the Loan?
- As the Government advice and Coronavirus Business Interruption Loan Scheme guidance changes, SME’s should ensure they understand the terms and implications of any Loan Scheme they apply for; not only for now but in preparation for the future.
- There are many other support packages being rolled out by the Government for businesses or all shapes and sizes and it will be vitally important for businesses to work with knowledgeable professional advisors (including your solicitors, accountants and bankers) to make sure you get the support you are entitled to now and the impact this will have in the future for your business and for you personally.
Unprecedented times: Certainly! Uncertainty: Yes, that too! Optimism, support and positivity for the medium to long term future: Plenty of it and GA Solicitors are here to assist our business clients wherever possible.
*Planned relief available: Registered Companies £10,000 to £5million. Sole Traders/Partnerships £25,000 to £5million.
**Subject to an overall cap per lender.