CBILS – Banks rightly under fire?

The press last week picked up a few examples of high rates and onerous terms being attached to a few CBILS loan offers.  Whilst some of the comment is justified, I think there are a few key takeaways to consider from this story:

CBILS isn’t simply the banks lending Government money.  They have to ensure that they are lending “responsibly” – provided they can show they have done so, the Government is providing a guarantee that covers 80% of any loss on the loan (not, note, 80% of the loan), so the funder is exposed for 20% of whatever loss ultimately arises.

Owners need to understand their risk profile and the impact of additional debt on their businesses going forward, as banks will need to know that information to assess whether to lend.

Speaking to the right person, with the right investment thesis is critical. Your banking relationship manager may be a good place to start for some things – but frequently will not have the expertise or approval authority to structure higher value or more complex loan structures.  This can result, at best, in delays to the process, at worst, as I suspect may have happened in the Barclays case quoted, in an “over status” loan at almost credit card rates.

Business owners need to understand the potential impacts of different structuring – as a simple example, a personal guarantee would be fully called by the bank if the loan defaulted before it could claim against the government guarantee. (As statements from different banks have made clear, the use of PGs in this situation is not universal.  There are generally alternative ways of providing security that, though sometimes notionally larger cost, may be less risky in a given situation.)

Finally, making excessive returns from providing essential services during this crisis is unlikely to yield positive press – whether it is an organisation decision or an inappropriate, not fully thought through action by a single staff member.   This is true for businesses generally (reference Sports Direct’s recent u-turn on store openings).  Forr your own company, consider whether, given lower sales levels, controls over staff incentives, commissions etc may need revisited to ensure no-one is incentivised to “run rogue” over your intended corporate approach).  As ever when times are tough, fair treatment and good communication with all stakeholders is key.