Coronavirus business interruption loans – update on personal guarantees
These are difficult times for business owners many of whom may be facing personal financial ruin. The Government, having trumpeted the Coronavirus Business Interruption Loan (CBIL) scheme as one of a number of generous measures to help businesses suffering as result of the lockdown, then shot itself in the foot by giving banks the option to take personal guarantees for loans up to £250,000. With the Government covering only 80% of a CBIL, it’s not unsurprising that CBILs under £250,000 quickly became conditional upon business owners giving personal guarantees, and the backlash from commentators and the business community was swift.
To be fair, the Government listened to the objections and revised the terms of the scheme so that security may be required by a bank, but personal guarantees cannot be used for CBIL facilities of £250,000 or less. Moreover, if a personal guarantee is already in place or is given to a bank at any time in the future, the lender cannot make a demand or otherwise enforce such a guarantee for any amounts due under the CBIL Facility, or apply any recovery made under such a guarantee to the CBIL Facility.
For CBIL facilities above £250,000, a lender may, at its option, ask for personal guarantees. If a personal guarantee is given (including where such a facility benefits from an existing or future personal guarantee), the following rules apply:
It remains to be seen how many CBILs will be personally guaranteed by business owners but certainly the noise has died down which must be a good thing. It will also be interesting to see how many lenders pursue claims under personal guarantees as we come out of the lockdown. Many business owners will have taken out a CBIL in good faith hoping that a lifting of the lockdown will trigger a return to normal trading conditions. But what the “new normal” will look like is anyone’s guess and it’s surely inevitable that many businesses will hit the buffers before the economy turns a corner. What then for those who have given personal guarantees?
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