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Some home truths

By John Landers

Business Finance Services

HUNDREDS of thousands of SME Businesses have been knocked to the floor by the impact of COVID-19 and are desperate for the Government to come up with financial support to help them with current cash flow challenges.

One of the support proposals for SME businesses is the Coronavirus Business Interruption Loan Scheme (CBILS) that the British Business Bank (BBB) is working with the Government, the major banks and other funding institutions to deliver.

CBILS 1 was announced and led to much criticism and after some consultation with finance industry bodies et al CBILS 2 was launched. To be fair, after the lifting of the upper limit and some further tweaks around limited personal guarantees (PGs), the proposals for loans above £250,000 appear to be sensible. However, the headlining ‘no PGs for loans under £250,000’, in one fell swoop, made it more difficult for those SMEs who do not meet the banks ‘viable’ criteria and placed restrictions on other BBB accredited partners in the scheme.

How, you may ask? And the answer is down to the interpretation of the word viable and the importance PGs play in obtaining funding for smaller SMEs.

The Oxford Dictionary – defines viable as ‘something that can be successful’. Banks regard viable as those businesses they already lend to or would be prepared to lend to had they asked – pre-COVID-19 – but did not need to borrow. In the main, these businesses will be established, profitable, have strong balance sheets and are generally regarded as low risk. Where they may be flexible on their criteria is where they have good relationships. A bank manager that understands the business and additional PG security provided by the owners allowed flexibility on ‘computer driven’ credit processes.

Business owners, being passionate about their businesses, nearly all think their business can be successful irrespective of the challenges they may face including making losses, and maintaining weak balance sheets, competition etc.

Following on from the banking crisis in 2008 many smaller SME businesses will have experienced for themselves the difficulty in meeting banks’ lending criteria. However, there has been a plentiful supply of established non-bank funding facilities and the boom in new Fintech/Altfi offerings resulted in SMEs having access to funding for growth. The focus on speed and ease of access to funding based on algorithms allowed many SME business owners to forget the banks, who were focused on ‘responsible lending’, instead resorting to alternative facilities that were easy to access and required less scrutiny.

Interestingly, in most cases the Fintech/Altfi lenders required PGs and many owners who would not consider giving their banks PGs were happy to give them to the alternative lenders.

The impact of taking ‘quick and easy cash’ will now seriously impact on many small businesses being able to qualify for support under CBILS, particularly those making losses, having weak balance sheets and multiple loans, as they will not meet the banks ‘viable’ criteria.

Some of the other accredited BBB partners authorised to provide loans under the CBILS scheme require PGs as part of their lending covenants and now find themselves unable to participate in the scheme. Ironically, some of these funders will be able to provide support outside the CBILS scheme where they can take PGs.

I hope by the time this article is published the Government will recognise the removal of PGs for loans under £250,000 made great headlines but just made it nigh on impossible for many small businesses to get CBILS loan support.

Nearly every funder operating within the smaller end of the SME space will be focusing on the impact COVID-19 has on their existing clients and, whilst many are still open for business, they will have moved the goalposts on their qualifying criteria and PGs will be an inevitable requirement.

Unfortunately, a lot of small businesses will not be able to access support under CBILS and this will put owners in a position where they will be required to step up to the plate and put their money where their mouth is if they want to access funding because they genuinely believe their business is viable.

Never has it been more important to take the emotion and false optimism out of the decision making process and to take proper professional advice from accountants, solicitors, insolvency practitioners and dare I say it experienced finance brokers like Business Finance Services.

Call 0800 093 5240 or email us at and we will be happy to advise you or introduce you to legal advisors if appropriate.