There is a steady stream of information being published regarding the Coronavirus Business Interruption Loan Scheme (CBILS). However, it has been somewhat overlooked that, in order to participate, borrowers still must satisfy banks’ normal loan criteria. The 80% government guarantee does not therefore appear to be sufficient by itself, for many banks to provide CBILS facilities to SMEs during these uncertain times.
The BBC has published an article (see here) criticising banks for often insisting on personal guarantees (PGs) being provided as part of CBILS lending. As well as PGs, banks are often asking for these PGs to be secured by charges over the guarantor’s assets. Although the British Business Bank states that “primary residential property cannot be taken as security under the scheme” (see here), banks can still request security over other assets such as personal savings, shares or second homes.
Security under CBILS
As a summary:
Despite the above, it has been reported that HSBC’s current requirements is a form of PG for loans over £100,000. Barclays is apparently insisting that business owners need to sign a PG before they can access any CBILS lending. Royal Bank of Scotland, on the other hand, has confirmed that it will offer loans without asking for PGs.
It will be interesting to see in the coming days and months, if mounting pressure will cause other banks to follow in RBS’ footsteps.
Why should I be wary of giving a PG?
A UK company is a separate legal entity which is solely responsible for any debts it incurs; directors and shareholders sit behind the ‘corporate veil’ and are protected through limited liability. Providing a PG pierces this ‘corporate veil’, which means that the guarantor’s personal assets are at risk.
This only happens in other very limited circumstances such as:
Eight key points for potential guarantors
Potential guarantors should not be pressured to sign the personal guarantee proposed by their bank. Before committing, it is vital to always take proper legal advice. If you are concerned with any of the above, please contact a member of the team using our website, or your usual Fox Williams contact.
Articles and commentary by our legal experts on the impact of COVID-19 are all available here.
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