There is some fascinating language in last night’s press release from HM Treasury that modifies the Coronavirus Business Interruption Loan (CBIL) Scheme. It says lenders are ‘banned from requesting personal guarantees on loans under £250,000’. Hmmm.
This is – to put it mildly – a bit disingenuous, though politically expedient, bank bashing, because it implies it was the banks which wanted borrowers from the CBIL emergency scheme to pledge their business premises and any assets (other than the primary residence) as security against the loan.
In fact, this demand for personal guarantees, which so alarmed the owners of small businesses desperate for the help, was actually stipulated by HM Treasury and its partner the British Business Bank: the original documentation for the scheme said the lending banks had to use their ‘normal lending criteria’.
And as the Treasury well knows, those normal lending criteria almost always include a request for a personal guarantee. As it happens, the banks recognised how painful this would be for potential borrowers and have been lobbying the Treasury for a fortnight to remove the need for these guarantees.
The point is the banks reckoned they would probably end up writing off these loans and were prepared to take the hit on the chin – partly because they are exposed to the tune of just 20 per cent of the losses whereas it is the Treasury that faces an 80 per cent loss.
So it is not at all surprising that initially the Treasury insisted on normal lending dogma, to protect the taxpayer, namely that there should be personal guarantees underpinning the loans.
Having only latterly worked out that the severity of the crisis makes those guarantees inappropriate, the Chancellor has on Thursday night annulled the need for them.
But the use of the word ‘banning’ to describe what he’s done is perhaps a bit Orwellian. Since – for once, some of you may say – it was the banks that were actually trying to do the right and decent thing (and particularly because their call centre staff were being demoralised by accusations they were being rapacious by asking for these guarantees, when it was the Government that had removed their discretion to waive them).
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