Coronavirus Business Interruption Loan

Business Interruption Loan Scheme

Scheme to allow businesses to borrow to fund cash flow problems caused by the crisis - with the Government underwriting 80% of the loan.

The purpose of the scheme is to allow businesses with a cash flow problem to be able to borrow money to keep the business afloat. The scheme is operated through the British Business Bank - but almost all lenders will approach their own bank who are dealing with the loans.

The government will underwrite 80% of the loan granted under the scheme.

A lender can lend up to £5m and the loan can be in the form of overdraft, term loans, invoice financing or asset financing. We aware that at least one bank is only prepared to consider term loans on amounts below £250,000.

The general terms of the scheme are set centrally but each lender is likely to have a specific set of internal rules.

The fees attached to these loans are paid by the government and the loan is interest free for the first year before reverting to normal bank rates. Initial feedback suggests that the second year's interest is not extortionate. If you want to borrow money then you should first approach your own bank and find out the terms. Initially the banks were clearly overwhelmed by the demand but are now at least ready to consider applications.

Loans up to £250,000 must be free of personal guarantees. Larger loans can be subject to a charge but not on a person's home and they are restricted to 20% of the loan once the proceeds of business asset sales have been deducted.

The banks will only lend if there is a business case for the loan. You cannot borrow unless your business appears likely to be able to repay the loan. Therefore, it seems ideally suited to cases where only a lack of security would have prevented the bank lending on ordinary commercial terms. 

Care should be taken that the loan is not simply a way to avoid making cuts to their business.  Unwisely borrowing money could damage the business in the long term. The guarantee on the loan only takes effect if the business fails. If it survives the money must be repaid. On the other hand, if you have a business which is on the edge of failing you may take the view that survival is the only consideration at the moment.