The most recent statistics published by the Government (on 23 June 2020) show that 972,026 businesses across the UK have now received loans totalling over £40 billion through the various loan schemes for businesses affected by the pandemic, including the Bounce Back Loan Scheme (BBLS), the Coronavirus Business Interruption Loan Scheme (CBILS) and the Coronavirus Large Business Interruption Loan Scheme (CLBILS).
In particular, more than 920,000 businesses have successfully applied for BBLS loans, with a total of £28.09 billion provided to date. This far outstrips the facilities provided under the CBILS (£10.53 billion provided to 50,482 businesses) and the CLBILS (£2.10 billion provided to 315 businesses).
These figures are not entirely surprising: although BBLS loans are limited to 25% of a borrower’s turnover (subject to a maximum of £50,000), the interest rate is set at 2.5% per annum, whereas CBILS and CLBILS facilities may be made available at a lender’s market rate. There is also no requirement under the BBLS for the business to have a borrowing proposal which the lender would consider viable were it not for the current pandemic, unlike the CBILS and CLBILS, and the borrower does not have to make any repayments for the first twelve months.
However, concerns are starting to be raised about the likelihood of these loans being paid back.
A recent study by the Business Banking Resolution Service found that 56% of the 500 small businesses surveyed had accessed Government-guaranteed loan schemes, but 43% of those businesses said they do not expect to repay them, either because they do not think they will be able to or because they do not believe that the Government will pursue the debt (even though this is a matter for the lender). Anecdotal evidence also suggests that many businesses believe BBLS facilities to be Government grants which do not need to be repaid.
When applying for a facility under the BBLS, CBILS or CLBILS, it is important that businesses remember the following:
- Any lending provided under these schemes is a debt not a grant and, as such, will need to be repaid.
- Although the lender is provided with a Government-backed guarantee against the outstanding balance of the finance, the borrower remains 100% liable for the debt.
- Although certain of the schemes provide that interest (and, in the case of the BBLS, capital) will not be payable for the first 12 months, repayments will need to be made after that time (subject to the specific repayment terms of each facility).
- If repayments are not made when due, the lender (and not the Government) will be entitled to seek to recover the full amount outstanding.
Businesses must therefore carefully consider their ability to repay before applying for funding under any of these loan schemes.
If you have any queries in relation to a BBLS, CBILS or CLBILS facility or any of the other financial support options available to businesses at this time, please feel free to contact a member of the Carson McDowell Banking team.
*This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice that is tailored to your circumstances.