Banks told to drop all personal warranty requirements for small business owners applying for coronavirus loans
- The IoD said that all banks should remove the requirements for personal guarantees
- Some banks have been criticized for insisting that business owners collateralise their personal assets in exchange for government-backed loans
- Seven out of ten entrepreneurs said the coronavirus outbreak is a high or serious threat to their business
- Coronavirus symptoms: what are they and should you see a doctor?
Banks have been told to remove all requirements for small business owners to guarantee personally government-backed loans to their businesses to help them survive the corona virus crisis.
The call came after some banks were criticized for insisting that business owners put their personal assets, such as real estate or savings, as collateral in exchange for the loans.
The Institute of Directors said that all banks should follow the example of those who have removed the requirements for personal guarantees for companies to access government-backed loans.
Retreat: Lloyds said it would no longer require personal guarantees
“Banks need to be flexible and accommodative to get cash to businesses as quickly as possible through the Coronavirus Business Interruption Loan Scheme,” the IoD said today.
It’s because entrepreneurs who asked Lloyds for an emergency government-backed lifeline were told to risk their homes and their savings to take out one of the bank’s own loans instead.
Rather than offering the government-backed loans, which are interest-free and free of initial costs for the first year, Britain’s largest lender has instead offered companies more expensive commercial loans of their own.
To make matters worse, the companies were subsequently told that their personal belongings, including their main home, will have to be used as collateral so that the bank can take everything if they cannot repay the money.
Lloyds told the Daily Mail that it would stop demanding personal guarantees on all new loans while the business interruption scheme was running. This also applies to own loans.
Business interruption loans can be as high as £ 5 million and are available to UK businesses with turnover of £ 45 million or less that are dealing with virus-related cash flow issues.
The scheme was announced in the budget and was strengthened last week by Chancellor Rishi Sunak.
The IoD also said that banks and other financial institutions should avoid share buybacks and big executive bonuses “to ensure that the money gets where it is most needed.”
It has also called, inter alia, today for an extension of financial support to directors of small business owners who often regard their income as dividends.
Those who provide a clear paper trail should be able to file a leave claim of 80% of their monthly income subject to tax, up to a maximum of £ 2,500 per month, to put them on an equal footing with employee support and self-employment said the IoD.
The IoD asked more than 700 business executives about the impact of coronavirus on their business, and seven out of 10 said the outbreak posed a major or serious threat to their organization, down from two in 10 in a similar survey a month ago.
The business interruption loan scheme was announced in the budget and was strengthened last week by Chancellor Rishi Sunak
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