March 2020
By Steven Howard , Head of Mortgage and Lending Intermediaries Compliance Services at The SimplyBiz Group
There will be a great number of businesses out there across all sectors of the UK market that will be suffering or will suffer financially from this current pandemic. It is likely that the consumer credit sector will have an important part to play in keeping many firms afloat. One of the measures introduced by the Government in their package of support is the Coronavirus Business Interruption Loan Scheme. We provide some details of this scheme below along with links to further information. We have also summarised the FCA guidance on how this links in with the provision of credit and existing rules around affordability.
The Business Interruption Loan Scheme supports lending to small and medium-sized enterprises (SMEs) impacted by coronavirus and aims to provide access to loans, overdrafts, invoice finance and asset finance of up to £5 million and for up to 6 years. It includes a business interruption payment to cover the first 12 months interest payment and fees, and the government will provide lenders with a guarantee of 80% on each loan to provide confidence to the market.
According to the Government, there are 40 accredited lenders able to offer the scheme, including all the major banks. To be eligible, a firm should be UK based in its activity, have an annual turnover of no more than £45 million and have a borrowing proposal which, were it not for the current pandemic, would be considered viable by the lender, and for which the lender believes the provision of finance will enable the business to trade out of any short-to-medium term difficulty. However, if the lender can offer finance on normal commercial terms without the need to make use of the scheme, they will do so.
The FCA has issued guidance to firms participating in the Government’s Coronavirus Business Interruption Loan Scheme. Loans of up to £25,000 to sole traders and unincorporated enterprises can fall within the scope of FCA regulation. The FCA guidance considers the information and circumstances that are relevant when assessing the affordability of such loans as per the FCA CONC handbook rules.
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The fact that the customer may, at the time of the application, be temporarily experiencing exceptional financial pressures does not mean that the firm is prevented from making the loan. When assessing the creditworthiness of a customer applying for a regulated credit agreement for business purposes, a firm is able to take a range of income and expenditure information into account. This can include historic trading figures and revised forecasts. If it is reasonable to expect increases in the customer’s income, or decreases in expenditure, in the longer term, then this could be relevant to whether the loan is affordable. Appropriate evidence could include data from the period immediately before the coronavirus (Covid-19) pandemic, such as trading accounts for the business and also information from the customer’s bank account. Forecasts from the business owner on expected levels of income and expenditure in a period post the stresses connected to the coronavirus pandemic may also be relevant in assessing affordability. |
The guidance says that:
Further information can be found on: