Banks have been criticised by firms and MPs for insisting on personal guarantees to issue government-backed emergency loans to business owners.
The requirement loads most of the risk that the loan goes bad on the business owner, rather than the banks.
It means that the banks can go after the personal property of the owner of a firm if their business goes under and they cannot afford to pay off the debt.
Their main home would be protected but the bank could go after other assets.
Those can include things like personal savings, shares or holiday homes. And some think that will stop business owners from making use of the emergency loan scheme, which the government put in place to stop businesses from going under during the coronavirus crisis.
The coronavirus business interruption loans (CBIL) are a key plank of the government’s package to protect businesses throughout the ongoing shutdown.
The British Business Bank, the government body that is overseeing the scheme, decided not to require lenders to secure personal guarantees as part of the loan programme. Instead, it told lenders they have discretion over the security they require.
According to UK Finance, formerly the British Bankers Association, the scheme should offer loans of up to £5m, where the government promises to cover 80% of losses if the money is not repaid. But, it notes: “Lenders may require security for the facility.”