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Technical briefing: Finance
Ian Priest has a timely
warning over CBILs – the
Government’s Coronavirus
Business Interruption
Loans – as they become
due for repayment
Just before 11.40 pm on January 14, 1912
the Titanic’s look-out yelled “iceberg dead
ahead.” The rest, as they say, is history.
We will never know how different the
outcome would have been if the iceberg
had been spotted earlier or if a different
course of action had been taken. Some
suggest that hitting it head-on rather than
trying to turn and taking a glancing blow
would have left the ship severely damaged
but still afloat. Who knows?
What’s the link with directors in the
Midlands? Well, there is a warning of ice in
the near future and wise business owners/
managers should be looking out for it, as it
could have serious consequences.
Government-backed Coronavirus
Business Interruption Loans (CBILs) were
granted with a six-year term. In September
last year, when it was clear that the
pandemic was not going away anytime
soon, it was announced that loans could
be extended beyond the original term to
reduce the burden on businesses.
For smaller businesses this appears to
be pretty much a flexible option and
lenders will be getting in touch with
customers just before repayments are due
to start with a range of flexible options.
For the larger CBILs, however, the
position is far less straightforward.
The British Business Bank website says:
‘A term extension beyond 6 years, up to a
maximum of 10 years for existing CBILS
facilities, can be made in connection with
the provision of forbearance relating to the
facility, at the discretion of the lender if
within its usual forbearance policies.’
So where, you may be asking, is the
iceberg lurking in that statement?
It’s in the word ‘forbearance’
The customer has to ask the bank for
forbearance and has to prove need.
In effect, the client has to tell the bank
that they are very likely to default on the
loan if the term is not extended.
I understand from at least two lenders
that forbearance and therefore extension
of the term cannot be handled by account
managers; it will only be available from
the experts in ‘Special Measures’, in other
words, the ‘bad bank.’
This means customers will be looked
after by the teams that specialise in getting
the bank’s money back. At the very least it
means providing lots of data to the bank
Warning: Iceberg
dead ahead –
and it’s called
forbearance !
on performance of your business every
month and at worst, that they will start
recovery processes.
CBILs had no personal guarantees
below £250k and were restricted to 20 per
cent above £250k and supporting security
over your home was not allowed. But that
is not the full picture either – another
potential iceberg looms.
What if the bank had pre-existing
security – guarantees and charges over
your property? These will almost certainly
be ‘all monies’ securities which means
they can be applied to any and all money
owed to the bank. Will the bank manage
the recovery in such a way as to maximise
what they can claim? Yes, they almost
certainly will.
The Government 80 per cent guarantee
is 80 per cent of what is left after the bank
has recovered everything it can from the
company / security – it is not, and never
was, 80 per cent of the loan.
You may have the right to request an
extension to your CBILs but I would
strongly suggest that you need to think it
through very carefully before you do.
So perhaps a different course of action
is called for?
The Government has launched 80 per
cent guaranteed Recovery Loans. On the
face of it these are very similar to CBILs
but do have some differences. There is no
12 month repayment holiday and no
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