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News | Published March 29 2020

Banks criticised for coronavirus loan model

MPs and firms have criticised banks for demanding personal guarantees to issue businesses with government backed emergency loans.

The risk of loans in this form is put on the business owners as opposed to the bank. This means that banks can pursue the personal property of business owners if they are unable to pay off their debt when their business goes under.

While business owners would have their main home protected, banks would be able to seek recompense in the form of other assets. These other assets can include shares, holiday homes and personal savings.

Critics suggest that these measures will prevent business owners from using the emergency loan scheme, put in place by the government to prevent businesses from going under during the coronavirus crisis.

UK Finance, formerly the British Bankers Association, said that the scheme should offer loans up to the sum of £5 million, with the government promising to cover up to 80 per cent of any losses if the money cannot be repaid.

In a statement, they said: "Lenders may require security for the facility."

Andy Keats, leader of the SME Alliance who represent small and medium sized businesses, said that: “yet again, it is the banks and not businesses who will receive the funds to help SMEs".

He continued: "We would appreciate some clarity because, as things stand, the proposed loans mean the banks have no risk, the government has a small risk and businesses and their officers have 100% risk.”

In a tweet, the All-Party Parliamentary Group on Fair Business Banking, wrote that: "There is confusion about [coronavirus business interruption loan schemes].

“Treasury must issue clear guidance on parameters and not allow security at 'discretion of the lender' to muddy the waters. Unprecedented times require emergency funding. Keep it simple, and no [personal guarantees]."


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Authored by

Alice Jaspars
Culture Editor
@
March 29 2020

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