Many businesses of all types and sizes are struggling in these unprecedented and unpredictable times. The UK Government has introduced a number of different schemes designed to support businesses through the coronavirus lockdown and beyond.
The Coronavirus Business Interruption Loan Scheme was introduced in March with the aim of providing SMEs in the UK with access to up to £5 million of finance to help them get through this period.
What is the Coronavirus Business Interruption Loan Scheme?
The Coronavirus Business Interruption Loan Scheme (CBILS) is a new scheme that was introduced by the Chancellor on 23 March 2020 and revised on 02 April. It provides support for small and medium businesses in the UK who may be experiencing cash-flow problems during the COVID-19 pandemic.
It is administered by the British Business Bank via more than 40 accredited lenders. These accredited lenders include a wide range of high street and challenger banks, asset-based lenders and smaller specialist local lenders.
The lender can provide up to £5 million in different forms including term loans and overdrafts. The borrower is still fully liable to pay back the finance they borrow but essentially the scheme gives these lenders a government-backed guarantee for the debt repayments. This is intended to encourage more lending. The Government will also pay the first year’s worth of any interest and fees on the loan or financing.
What are the key features?
Here are the key features of the Coronavirus Business Interruption Loan Scheme…
- Finance facility of up to £5 million
The maximum value of a loan or finance provision delivered through the scheme is £5 million.
- Finance terms
The maximum repayment terms depend on the type of finance that you access. The four types of finance covered by the scheme are term loans, asset finance, overdrafts and invoice financing. For term loans and asset finance facilities, the maximum term is six years. For overdrafts and invoice finance facilities, the terms can be up to three years.
- Lender guarantees
The CBILS scheme provides the lender with a partial guarantee backed by the Government. This guarantees against 80% of the outstanding balance, subject to an overall cap.
As already noted though, this is a loan and not a grant. This means that the borrower remains 100% liable for the debt’s repayment. Any repayment holidays or deferrals will be at the lender’s discretion.
- Interest and fees
The Government will pay the first 12 months of interest payments and any fees applied by the lender via a Business Interruption Payment. This means there will be no up-front fees and the initial repayment amounts should be lower.
- Guarantee fees
The SME does not pay a guarantee fee to access the scheme. The lender pays a small fee to participate in the scheme.
In the earlier version of the scheme the lender was required to establish that the business had a lack of security for CBILS facilities above £250,000. This is no longer the case and the scheme now supports lending to eligible businesses even where there is found to be sufficient security present.
Personal guarantees cannot be taken for facilities under £250,000. They may be required above that threshold, depending on the lender’s discretion. Where they are, they exclude the Principal Private Residence (PPR) and are capped at 20% of the facility balance after applying the proceeds of business assets.
Will your business be eligible?
The scheme is designed to be flexible and provide financing options for a wide range of smaller
businesses. There are still some eligibility requirements however.
- Business type and size
In order to be eligible for the scheme, your business must be based in the UK and have an annual turnover not exceeding £45 million.
Businesses from all sectors can apply for CBILS-backed financing but there are some restrictions with the following trades and organisations NOT eligible under the scheme: banks, building societies, insurers and reinsurers (although insurance brokers may be eligible); the public sector including all state funded primary and secondary schools; employer, professional, religious or political membership organisations, and trade unions.
Businesses previously excluded from the Enterprise Finance Guarantee, including those operating in haulage, agriculture, fisheeries and aquaculture can apply for the scheme. Fisheery, aquaculture and agricultural businesses might not qualify for the full interest and fee payment however.
In order to qualify for the scheme the borrower is required to submit a borrowing proposal that “were it not for the current pandemic, would be considered viable by the lender”. The lender should also be confident that the provision of finance under the CBILS scheme will enable the business to trade out of any short- to-medium-term difficulty.
Additionally, If you want to borrow £30,000 or more, you will need to confirm that your business wasn’t classed as a business in difficulty at the end of last year (31 December 2019).
How can you get the finance?
An interested business is required to contact a participating lender directly or through an advisor. The accredited lenders delivering finance through the scheme include all the main high street banks and a number of alternative lenders.
A full list is available on the British Business Bank website but not all the lenders will provide all the types of finance included in the scheme.
You will need to submit an application, telling the lender how much finance you need and what you need it for. You may need to submit documents including business plans and cash-flow forecasts, management accounts, historic accounts and details of business assets.
How can we help?
We can help you to determine whether you are eligible for the Coronavirus Business Interruption Loan Scheme in the first place.
Even if you are, there is no guarantee that any individual lender will offer you the loan or other finance product. They will still need to feel that the finance is affordable, right for your needs and is for a suitable business purpose.
We can guide you through every part of the application process: making sure you are eligible, identifying the most suitable lenders, helping you to make the application itself and preparing any documents and other information required.
Contact us today to find out more.