Progress on a state guarantee scheme to replace CBILS is being hampered by pricing and personal guarantee issues.
According to the Times, provisional details of the scheme were intended to be laid out by the end of last month, helping lenders prepare for a planned launch in April. However, said lenders are concerned that they won’t be prepared in time because of these complications.
It’s hoped that the new scheme can help businesses who aren’t eligible for normal commercial lending to get back on track post-pandemic.
The scheme would also help non-bank lenders to raise wholesale funds to continue to provide credit to small businesses. The state guarantee provides confidence over recoveries should a borrower default.
That said, the Treasury is torn between striking a balance between rules that will provide a broad range of lenders and conditions that will be attractive to borrowers, with bank and non-bank lenders having different needs in key areas.
CBILS loans over £250,000 were changed to state-backed rather than personal guarantees following an outcry last year. But despite the taxpayer guarantee, alternative funders are likely to need personal guarantees to meet the needs of their wholesale funders.
As for pricing, non-bank lenders are likely to need to charge borrowers more than larger banks in order for the scheme to viable for them, but there is sensitivity around allowing interest rates on government-backed credit.
It’s likely that the scheme will allow personal guarantees to be taken, but imposing limitations to protect borrowers.
Establishing what security demands can be made of borrowers is also an ongoing issue.
Under CBILS, a borrower’s main property cannot be taken as security, but second homes may be. Recovery of loans under a personal guarantee is capped at 20 per cent of the outstanding balance after the process of the business assets have been applied through insolvency.