Banks told to drop all requirements for personal guarantees for small business owners


Banks told to stop asking small business owners to put their own assets up as guarantee to access government-backed coronavirus loans

  • The IoD said all banks should drop requirements for personal guarantees
  • Some banks have been criticised for insisting that business owners put their personal assets as a collateral in exchange for the Government-backed loans
  • Seven out of 10 business owners said the coronavirus outbreak poses a high or severe threat to their firm
  • Coronavirus symptoms: what are they and should you see a doctor?

Banks have been told to drop all requirements for small business owners to guarantee personally government-backed loans made to their companies to help them stay afloat during the coronavirus crisis.

The call comes after some banks were criticised for insisting that business owners put their personal assets, like property or savings, up as collateral in exchange for the loans.  

The Institute of Directors said all banks should follow the example of those who have dropped requirements for personal guarantees for firms to access government-backed loans.

Retreat: Lloyds said it would stop demanding personal guarantees

‘Banks must be flexible and accommodating to get cash to companies as quickly as possible through the Coronavirus Business Interruption Loan Scheme,’ the IoD said today.  

It comes as business owners applying to Lloyds for an emergency Government-backed lifeline were told they must risk their home and life savings to take out one of the bank’s own loans instead. 

Rather than being offered the Government-backed loans, which are interest-free for the first year and free of initial charges, Britain’s biggest lender has been offering firms its own more expensive commercial loans instead. 

To make matters worse, the companies were then told their personal assets including their main home will have to be used as collateral, allowing the bank to seize everything they own if they cannot pay back the money. 

Lloyds told the Daily Mail it would stop demanding personal guarantees on all new loans while the business interruption scheme was running. This also applies to its own loans. 

Business interruption loans can be up to £5million and are available to businesses based in the UK with a turnover of £45million or less, who are experiencing virus-related cash flow issues.

The scheme was announced in the Budget and beefed up last week by Chancellor Rishi Sunak.  

The IoD also said banks and other financial institutions should avoid share buybacks and large bonuses for executive ‘to make sure the money is going where it is most needed’.

Among other things, it also today called for an extension of financial support to company owner directors of the smallest companies who often take their income as dividends. 

‘Those that provide a clear paper trail should be able to make a furlough claim of 80% of their monthly income subject to tax, up to a £2,500 per month cap, ​to put them on par with support available for employees and the self-employed,’ the IoD said.

The IoD asked over 700 business leaders about the impact of coronavirus on their business and seven out of 10 said the outbreak posed a high or severe threat to their organisation, up from two in ten in a similar poll a month ago.  

The business interruption loan scheme was announced in the Budget and beefed up last week by Chancellor Rishi Sunak

The business interruption loan scheme was announced in the Budget and beefed up last week by Chancellor Rishi Sunak

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