Coronavirus business interruption loans – update on personal guarantees

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Coronavirus business interruption loans – update on personal guarantees

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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:

 

  1. the lender can only make a demand on a personal guarantee once they have realised all other collateral that is available to support such CBIL Facility (including collateral that is available to both the CBIL Facility and to other facilities);
  2. lenders may only make a demand on a personal guarantee in connection with the CBIL Facility for a maximum amount equal to 20% of the amount of the facility that remains outstanding after the proceeds of all other available collateral have been applied; and
  3. primary residential property may never be taken as security for any CBIL facility.

 

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?

 

If would like support and further guidance, we have a strong advisory team ready to help you. Please contact Noel Ruddy to discuss further. 

 

Further reading: Covid-19 And Issues Concerning Personal Guarantees
Please visit the PDT Solicitors Covid-19 Legal Hub for legal advice and updates on the coronavirus pandemic 

The content of this webpage is for information only and is not intended to be construed as legal advice and should not be treated as a substitute for specific advice. PDT Solicitors LLP accepts no responsibility for the content of any third party website to which this webpage refers.

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