We have a continued interest in firms lending in a way that does not lead to harm to consumers (including small businesses protected by the consumer credit regime). Where a customer is applying for a business loan to which the Coronavirus Business Interruption Loan Scheme applies, 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 by CONC 5.2A.5R from making the loan.
When assessing the creditworthiness of a customer applying for a regulated credit agreement for business purposes, a firm is able to take a range of income and expenditure information into account. This can include historic trading figures and revised forecasts.
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. Appropriate evidence could include data from the period immediately before the coronavirus (Covid-19) pandemic, such as trading accounts for the business and also information from the customer’s bank account. 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.
The terms of the loan, including when the obligation to make repayments begins to apply and whether there is a pause during any period of financial pressure linked to coronavirus, and whether the repayment obligation is contingent on the customer’s stressed financial circumstances having abated, will also be relevant.
If a loan has been granted on the basis that there will be a future increase in income, but the customer’s income does not in fact increase in line with expectations to enable the customer to make repayments as required under the terms of the business loan, the firm should consider deferring or limiting the obligation to repay until the customer’s income has reached an appropriate level where they can make these repayments.
The extent and scope of a proportionate creditworthiness assessment depends on, amongst other things, the consequences for the customer if they fail to make a repayment by the due date. So, the terms of the loan, including any default charges or right to enforce security, also affect the application of the rules in CONC 5.2A.