Government set to announce new loans scheme

The Government is planning to launch a replacement for the Covid loans programme with new state-backed guarantees to support lending by banks to SMEs..

Under plans still being finalised, the new Government scheme could guarantee up to 80 per cent of loans of up to £10 million for businesses that are deemed viable but unable to obtain finance from their lender.  This scheme could revert to the Enterprise Finance Guarantee (EFG) scheme which CBILS replaced in the Spring. Since 2015, over £250 million of loans under the EFG included personal guarantees as part of the security required by lenders

Commenting on the new Government-backed loan scheme for SMEs, Douglas Grant, Director of Conister, part of AIM-listed Manx Financial Group, said “We fully support the UK Government’s plans to launch a permanent replacement for the £65bn Covid loans programme to support SMEs. The BBLS and CBILS have played instrumental roles in keeping many resilient SMEs alive during this uncertain year. While demand has exceeded supply, the schemes have acted as important triage systems to identify and support viable businesses that need credit the most and in doing so, provide a boost to the health of the UK SME segment as a whole.”

“As an alternative lender, Conister received an initial allocation limit of £10m for the BBLS scheme and so far, we have received 4,607 applications with a total amount of £162,739,000 – most of this was within 72 hours of going live. We have so far approved 60% of these applications. Without doubt, the scale of applications is enormous and while SMEs are the lifeblood of the economy and where innovation and creativity happens, it is crucial that priority is given to resilient businesses to allow them to pivot their business models for the new normal. This more permanent financial support from the Government will be welcome news to those resilient SMEs that have already shown extraordinary levels of adaptability and strength in the face of changing consumer behaviour.”

“However there still needs to be continued tripartite level of sustainable support from Government, alternative and traditional lenders working together to identify and protect the more resilient sectors of the economy, ensuring their existence is guaranteed. After vital financial aid, SMEs need the Government to support their sectors with widespread and long term growth initiatives that allow them to flourish. We are determined and absolutely focussed on working with companies to protect those robust businesses operating in sectors that ultimately will grow stronger with the necessary capital in the long term. We truly believe that the UK’s SME sector will emerge from this crisis a more resilient and stable sector than ever before.”

Todd Davison, MD of Purbeck Insurance Services said “No business owner, however desperate, wants to sign a Personal Guarantee, putting their personal assets on the line if the business fails.  The fact that close to 1 in 5 small businesses are already leaning on the personal finances of the business owner does raise fears that coffers could soon run dry and therefore signing a Personal Guarantee to access funding will be the stark reality for many as we head into 2021.  This is further compounded by the Crown preference introduced on 1st December 2020.”

“We not only expect to see more lenders insisting on Personal Guarantees but these may also be a requirement for loans taken out under the new Government loan. If this is the case, it is vital businesses are made fully aware of the ways they can mitigate the risks, through for example, Personal Guarantee Insurance, through sharing the risk with co-directors, by negotiating a time limit for the Guarantee, or by negotiating to Guarantee part of the loan.”

“Purbeck has supported a series of applications for Personal Guarantee Insurance for CBILS loans and we expect this to continue under the new scheme if Personal Guarantees are a requirement.  Unlike most other types of insurance, we work hard to prevent failure and a subsequent claim by offering mentoring and advice to business owners in financial distress.  If the company does become insolvent, we also provide a demand mitigation response service up to the value of £10,000 within our policy cover.  This has been a key draw for policy holders – it’s not just about covering the risk of a Personal Guarantee, we are helping small business owners through a pretty turbulent and stressful times in their lives.”