Can UK marine businesses realistically benefit from the Coronavirus Business Interruption Loan Schem
On 23rd March the UK government launched its Coronavirus Business Interruption Loan Scheme (“CBILS”).
CBILS works through accredited lenders of which there are 40. These include a handful of lenders that have been active in the UK marine finance market – notably ABN-Amro, RBS Group and Santander.
Reference is made to the government advice in the link above but in summary businesses with a UK based business activity and an annual turnover up to £45m can apply to access loans, overdrafts, invoice finance and asset finance in an amount up to £5m and for terms up to 6 years. The government through the British Business Bank will guarantee to its accredited lenders 80% of the amount lent, thereby hopefully unlocking private sector finance to assist businesses through this difficult period. The government will also pay the first 12 months of interest and the facility fees as a Business Interruption Payment – again this payment will presumably be made direct to the accredited lenders.
In addition, it is stipulated that personal guarantees should not be required for loans under £250,000 and should be capped at 20% of the outstanding loan amount for sums above £250,000 (after any recovery from the business assets) and exclude recourse to the guarantor’s principal private residence (this last point is contained on the British Business Bank website).
So far so good and on paper this looks generous although there has been some controversy around the fact that there is no cap on the interest that accredited lenders may charge. However for marine businesses particularly, there is an important catch in that the prospective borrower must have a borrowing proposal which the lender:
“a) would consider viable, were it not for the COVID-19 pandemic;
b) believes will enable you to trade out of any short-term to medium-term difficulty.”
So while limb b) offers the potential to obtain finance where a business is experiencing cash flow difficulties that might previously have prevented it securing finance, with limb a) we are back to the fundamental problems restricting marine finance in the UK – the depressing aversion of UK banks to the sector based on i) historical concerns around the cyclicality of the market and ii) the funding cost challenges that the Basel III capital adequacy framework poses for marine finance with that sector’s need for longer term finance.
There would also be a question as to what constituted a “UK based business activity” – for example in the case of UK based owner of offshore support vessels some of whose vessels were chartered to work in other European waters (as is very common).
It could well be argued that at least for UK marine businesses in the commercial as opposed to leisure sector that they are a key national strategic asset at the present time, whether that is ferries bringing in medical supplies or wind farm vessels keeping the blades turning and electricity flowing. So, perhaps the government needs to go further with guidance to its accredited lenders as to what constitutes a “viable” business proposal, with regard to be had to the wider economic and social needs of the UK.
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