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Loans to help Carillion Subcontractors

6 February 2018

Loans to help Carillion Subcontractors

Following the collapse of Carillion the Government has offered support to contractors by making available £100m funding for the banks to support companies affected.  This is in effect an extension of the Enterprise Finance Guarantee (EFG) loan.   Typically the British Business Bank working with the BEIS (Government Business Department) underwrite up to 75% of the loan. Banks vary in their approach to the scheme but the BEIS is actively encouraging its use.

The package will provide support to high street lenders who might not otherwise have given loans to Carillion contractors because they may not have assets to put up as security.

Advantages

It can be good value but is never quick to raise this type of loan. The investment criteria are perhaps less stringent than non-guaranteed facilities. Capital and or interest holidays can usually be agreed. For distressed companies this can be a lifeline while they return to profitability. If you need to raise this type of loan remember it cannot be used to service arrears of VAT and PAYE. Being behind with tax payments  is likely to lead to a rejection of any proposal for an EFG loan.

Disadvantages

Not all applications are approved of course. If the contractor is clearly distressed the bank and or the BEIS may reject applications. Can you raise enough to provide a solution and adequate working capital whilst you return to profit? Can you service the loan? Merely creating more debt is not a solution where radical surgery may be needed. Also remember that almost always the loan is backed up by a personal guarantee.  If the bank can't get all the money out of you then they can then revert to the government to make up the shortfall. They are duty bound to pursue the personal guarantee in the event of a default and that could lead to bankruptcy/loss of home etc. 

So beware!

Think of a CVA and restructure the company's fixed and viable costs AND improve working capital.