Originally written by Anna Jordan on Small Business
Figures show that small and medium-sized business owners hold £1.2bn of personal liabilities linked to emergency Covid-19 loans, according to The Times.
This puts their personal assets on the line if their company doesn’t make it through the pandemic.
Personal guarantees were used earlier on in the pandemic and then restricted due to backlash. That said, figures from a Freedom of Information request show that 1,587 directors agreed to them when taking out credit through the Coronavirus Business Interruption Loan Scheme (CBILS).
These personal guarantees make directors liable when taking on debt for the company. Banks originally sought them on CBILS loans of all sizes and taxpayers were underwriting 80 per cent of the debt. They were changed so that guarantees are only sought on loans over £250,000.
The average size of a coronavirus business interruption loan backed by a personal guarantee is £766,000. Such liabilities will become a ‘significant issue’ for some directors once loans start to become repayable in April, said Todd Davison, managing director of Purbeck Insurance Services.
Borrowers’ main property can’t be taken as security, but second homes could be. Recovery of the loans under guarantee is capped at 20 per cent of the