Banking giant Barclays has performed a U-turn over onerous terms of emergency coronavirus loans that meant struggling business owners could be personally liable for the Government-backed debts.
The bank said it had removed the need for a personal guarantee to access taxpayer-backed loans after pressure from business owners on both the Government and the banking industry.
The fine print of the loans meant banks could seek to seize assets owned by company directors if their business went bust and they were unable to pay back the emergency loan.
While their personal home was protected, banks could go after other business or personal assets and it was thought second homes might be at risk.
Royal Bank of Scotland, which owns NatWest, has said it will not ask for personal guarantees for business interruption loans, heaping pressure on its rivals.
Barclays announced on Thursday afternoon it would remove personal guarantees for loans less than £250,000.
“If your business was a viable business before the crisis, and you meet the criteria, then this scheme can provide vital financial support to see you through these current challenges,” said Barclays Business Banking head Ian Rand.
Lloyds also said it will not take personal guarantees as security on emergency loans up to £250,000.
George Kafetzis, a restaurant boss from Birmingham, ran into problems when he contacted Lloyds and Barclays, being told by both he would have to put his own assets on the line if he wanted to get a loan to tie him over.
“All I’m trying to do is pay my staff so they don’t go through hardship,” he said. The loan would allow him to cover the salaries of his 30-odd staff for the weeks until Government grants come through to cover most of their pay.
It is thought the Department for Business, Energy and Industrial Strategy will hold talks with the banking trade body UK Finance over the loans issue.
The coronavirus business interruption loans scheme is designed to offer hard-hit companies up to £5 million interest free for the first year to help shore up their businesses.
The Government has pledged to underwrite 80% of the risk of the bank loans as an incentive for banks to lend to firms in difficulty.
But it has come to light that the terms mean most of the risk with the loan rests on the owners of firms and not the banks.
It is understood that personal guarantees are demanded at the discretion of lenders and the Government is thought to be keen for business owners to remain accountable for the debt they take on.
HSBC said it did not require personal guarantees for loans up to £250,000, but the lender reviews the terms of larger loans on a customer-by-customer basis.
A spokesman for the bank said: “To support our customers in these unprecedented times and to make it easier for our customers to access liquidity, we are not asking for personal guarantees on CBILs for loans up to £250,000.”
It comes amid warnings that firms need access to loans without onerous terms and conditions in order to survive.
Research from MarketFinance has revealed two-thirds of businesses polled have less than £50,000 cash available and are likely to run out of money before Easter.
But only half expect to take up the Government-backed loans, according to its study.
Anil Stocker, chief executive at MarketFinance, said: “Business owners are uncertain on revenue numbers for this year, with a third expecting at least a 50% drop in sales and, rightly, wary of taking on more loans that they might not be able to pay back.”
Mr Stocker said: “The number of businesses that believe they won’t make it to Easter has doubled from a third to two thirds despite the Treasury’s announcements.
“Time is of the essence.”