The government has made it easier for small businesses to secure emergency loans with a change late last week to eligibility for the Coronavirus Business Interruption Loan Scheme, or CBILS.
Originally, the government-backed interest-free loans could only be offered to businesses that could not secure finance in the normal way. Banks had also insisted that any borrowing over £250,000 had to be secured by way of personal guarantees. This meant that, despite increasingly difficult trading, business owners were expected to take on increased debt and risk to themselves personally, rather than the lender shouldering such risk.
The criteria for borrowing by SME’s under the Scheme has now been extended to all viable small businesses affected by Covid-19 and not just those not eligible for the Scheme. This follows complaints by potential borrowers that banks were first pushing their standard finance with interest and fees rather than the Scheme.
As further relief for many small business owners, personal guarantees can now only be demanded for the 20% of the CBILS loan over £250,000 not supported by the government scheme. In addition, the government has confirmed it will cover the first 12 months of interest and fees.
Currently, the largest threat to SME’s and the self-employed is severely reduced cash flow. The Chancellor’s latest announcement to extend eligibility of the state-backed scheme will offer a lifeline for those struggling. With direct access to CBILS rather than first being offered a bank’s own standard commercial lending product, businesses can now avoid taking on further debt on less financially favorable terms than that of the Scheme.
For larger businesses, the Chancellor had also announced a new loans package for companies with a turnover of between £45m and £500m. They will be able to borrow up to £25m under the Coronavirus Large Business Interruption Loan Scheme which will also be largely guaranteed by the government.
Whilst the Chancellor’s extension to the Scheme offers welcome support to those experiencing or anticipating cashflow issues, many business owners and self-employed have already taken necessary steps to improve or mitigate this. This might include agreeing to potential discounts for timely payment with customers, issuing a claim for non-payment or even agreeing to take security over assets.
If you are a small business owner who is anticipating a change in cashflow and would like to discuss your current contracts, then Wolferstans has a team of experts who can help.
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