U.K. Banks are insisting on personal guarantees to issue government-backed emergency loans to business owners.
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.
Those can include things like personal savings, shares or holiday homes.
Additionally, the lenders have tried to run loan applications through their normal business lending criteria – locking in 22% interest – before offering the Corona Business Interruption Loan at 5% interest and first year interest-free. – Read more.
“Barclays has apologised after customers were quoted interest rates of as much as 12 per cent for a CBIL, despite the fact that Bank of England rates being at record lows.” – Read more.
If a loan was made to a failed business and the owner had signed a personal guarantee, this is what would happen:
1️⃣ The bank would first repossess the assets of the owner or the business.
2️⃣ Only then would the government step in to cover 80% of the bank’s loss, leaving the bank to only write off what is left.
3️⃣ Bank’s earn interest and other fees on the loan, with limited exposure.
4️⃣ The small business owners carries 100% of the risk and risks getting crushed in the process.
That is how the government’s package to PROTECT businesses is really unfolding on the main-street.
That leaves us to ask: Who is really being protected here?