The Financial Conduct Authority (FCA) have an interest in firms lending in a way that does not lead to harm to consumers (including small businesses protected by the consumer credit regime).
For smaller businesses to be eligible to apply for the full five-million-pound facility under CBILS, an SME must:
- Be UK-based with annual turnover of no more than £45m
- Have a borrowing proposal which, if not for COVID-19, would be considered a viable proposition by the lender,
- The lender believes the condition of finance will enable the business to trade out of difficulty in the short-to-medium term.
Where the lender can offer finance on normal commercial terms without using CBILS, they will do so.
On Friday, the Financial Conduct Authority published clear guidance to all participating lenders of CBILS. This response to the COVID-19 outbreak has demonstrated that the regulator is and continues to be flexible while ensuring markets work well.
The FCA noted that when lenders consider firms for a business loan under CBILS, they would not face undue scrutiny due to the current market. The fact that the customer may, at the time of the application, be temporarily experiencing exceptional financial pressures does not mean that the firm is prevented from making the loan, nor does this allow lenders to decline the application.
The regulator also discussed how lenders can adapt their creditworthiness and affordability assessments, including how lenders could use a wider spread of data, such as, information on a firm immediately before the outbreak of COVID-19.
The FCA said, if it is reasonable to expect increases in the customer’s income, or decreases in expenditure, in the longer term, then this could be relevant to whether the loan is affordable. Forecasts from the business owner on expected levels of income and expenditure in a period post the stresses connected to the coronavirus pandemic may also be relevant in assessing affordability. In addition, the regulator also asked adoptees of CBILs to consider the terms of the lean, including the when the obligations to make repayments apply.
As with any unknowns, the regulator is asking lenders to take a sympathetic stance during these unprecedented times, commenting that firms consider deferring or limiting the obligation to repay until the customer’s income has reached an appropriate level where they can make these repayments.
For more information about the lenders who are participating in CBILS and where to apply, Click Here.