We appreciate these are difficult times for businesses, business owners and their staff, which is why we want to do what we can to help you through the challenging weeks ahead.
With most businesses now working reduced hours, with limited staff, or forced to close entirely, we understand the practical and emotional cost the Government’s rules (whilst necessary to contain the spread of coronavirus) are having to local business.
The Chancellor recently set out a package of measures to support workforces and businesses as a result of the impact of COVID-19. The full extent of the package can be found on the gov.uk site.
Amongst other measures, these include:
- small business grant funding of £10,000 for all business in receipt of small business rate relief or rural rate relief (further information on business grants can be found on your local authority’s website)
- grant funding of £25,000 for retail, hospitality and leisure businesses with property with a rateable value between £15,000 and £51,000 (further information on business grants can be found on your local authority’s website)
- the Coronavirus Business Interruption Loan Scheme offering loans of up to £5 million for small and medium-sized enterprises (SMEs), delivered by the British Business Bank, in which to access government-backed lending and overdrafts
- a new lending facility from the Bank of England to help support liquidity among larger firms, helping them bridge coronavirus disruption to their cash flows through loans
Coronavirus Business Interruption Loan Scheme (CBILS)
CBILS was introduced to provide financial aid to SMEs suffering revenue loss and cashflow disruption as a result of coronavirus. It works by linking SMEs with high street lenders in order to access business loans, overdrafts, invoice finance and asset finance options.
To check whether your business is eligible, please visit the British Business Bank site for more information.
Please note that whilst the lender receives a government-backed, partial guarantee for the loan repayments, the borrower (SMEs) will remain fully liable for the debt.
How can we help?
You may note that, as part of the eligibility/lending criteria, a personal guarantee may be requested by the lender where the loan exceeds £250,000. This will be at the lender’s discretion.
Any loans under £250,000 should not be subject to a request for a personal guarantee.
Where a personal guarantee is required by the lender, you should be aware that:
- any recovery under the guarantees will be capped at a maximum of 20% of the outstanding balance of the CBILS loan facility after the proceeds of business assets have been applied; and
- a Principal Private Residence (PPR) cannot be taken as security to support a personal guarantee. For example, a main house cannot be used as security. However, this exception would not apply to second homes/properties.
If you have a second home/property that is to be used as security for a CBILS loan facility, you will need to check the requirements with any existing mortgage lender who already has the benefit of a first legal charge over the property. Where the property is not subject to an outstanding mortgage, the process should be more straightforward.
A key feature of the CBILS scheme is that the Government will cover the first 12 months’ interest payments levied by the lender, together with any applicable charges (i.e. arrangement fees). Thereafter, the borrower will be liable for the full cost.
If you are required to enter into a personal guarantee, you may be required to seek independent legal advice on the matter before committing to the loan. This is to ensure you understand exactly what your obligations are and we are well placed to offer you advice on the matter. We understand the need to act quickly and appreciate that cashflow is already limited, and we are able to offer both timely and cost-effective advice to ensure you get access to the support you need as soon as possible.
Where access to Government-backed loans are not appropriate, or if you are not eligible for the scheme, you may be able to access other forms of loans to support a particular transaction. In such cases, bridging finance may be an option, but early advice should be sought from a mortgage broker or financial advisor as bridging finance is typically provided at much higher rates of interest, which may be an unattractive option in the current business climate.
Bridging finance, whilst not a new arrangement, can be useful in the following circumstances:
- if you need to purchase a property quickly and there is a delay with your related sale
- if there is a sudden break in a property chain
- development projects
- short-term refurbishment projects
- paying for a lease extension
- financing an auction purchase at short notice
Bridging finance gets its name from the fact that it is often used to ‘bridge the gap’ between buying a property and selling one which is linked to the related purchase, but they are used for much wider reasons and can be beneficial for those needing to borrow money quickly to risk a transaction falling through. Bridging finance terms are usually provided on the basis of being 12-24 months in duration, after which the full loan will need to have been repaid.
How can we help?
We understand the need for timely advice and action in respect of bridging finance, and we are able to act for you in dealing with the lender’s requirements at short notice.
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Author: Jacqueline Penfold. Litigation and Employment, Partner