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Personal guarantees in support of the Coronavirus Business Interruption Loan Scheme

As part of its package of measures in response to the coronavirus outbreak, the Government has introduced the Coronavirus Business Interruption Loan Scheme (or “CBILS”) to support UK businesses during this period of disruption. Further details of the CBILS can be found here.

As businesses move forward to take a CBIL, it is possible that the lending bank may request a person guarantee from the business for all, or part of the loan not guaranteed by the government.

While lenders are not permitted to take personal guarantees in any form for CBILS facilities below £250,000, lenders may – at their discretion – still require personal guarantees for facilities above £250,000. 

If a lender takes a personal guarantee for a CBILS facility below £250,000, the lender will not be able to make any demand under it or apply any proceeds from it in connection with the facility.

Any personal guarantee which is permitted in connection with a facility offered under the CBILS will be subject to the following limitations:

  • In the event of a company’s default, claims under the personal guarantee cannot exceed 20 per cent. of the outstanding balance of the CBILS facility after the proceeds of the business’ assets and all other recoveries have been applied; and
  • A guarantor’s principal private residence cannot be used as security in support of a personal guarantee (nor can it be taken as security for a CBIL-backed facility, although assets of the company can be secured).

Worked example:

Company A secures a facility of £1,000,000

Company A defaults owing £600,000

Lender recovers £100,000 from Company A’s other business assets leaving £500,000 outstanding

Call on personal guarantee is £100,000 (being 20 per cent. of the outstanding £500,000 debt)

Government covers £320,000 (being 80 per cent. of the lender’s loss)

Lender loses £80,000

 

What can we do for you?

In these circumstances, it is important that anyone giving a personal guarantee fully understands the implications of it and is satisfied that it goes no further than they agreed with the bank.  It is also highly likely that the lender will require an individual giving a personal guarantee to appoint an independent solicitor to provide them with legal advice on the potential consequences of entering into the guarantee. 

If you are required to give a personal guarantee in connection with a facility under the CBILS, we can act as your independent solicitor, provide you with the necessary legal advice in relation to the guarantee, and give the written confirmations any lender will require.  At BPE we have extensive experience in advising on such documents and during the current unprecedented crisis we are offering to do this for a reduced fixed fee of £100 (excluding  VAT). Please contact Dale Williams to discuss your requirements further.  

These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.

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