What you need to know: COVID-19: Business Interruption Loan Scheme

The Coronaviruas Business Interuption Loan Scheme (CBILS) is a loan scheme that has been set up to help small and medium-sized enterprises (SMEs) that are struggling with cash flow because of revenues that have been deferred or lost due to the coronavirus outbreak. The loans are being offered on generous terms to support SMEs.

There has been much made of the difficulty’s businesses have encountered trying to gain access to this essential funding. However, the Government have been clear, the process needs to be easier and faster and banks should not be turning businesses who need this funding away.

The scheme allows lenders to provide facilities of up to £5 million for up to six years, for term loans and asset finance, and up to three years for overdrafts and invoice finance.

It is important to note that as the scheme provides a guarantee to the lender the business will be liable for the full amount of the loan. The government guarantee will step in if the business subsequently fails and is unable to repay the loan. This therefore allows lenders to provide funding where they would normally require security from the assets of the borrower.

Eligibility

• your business is based in the UK
• your business has an annual turnover of up to £45 million
• your business has a borrowing proposal which the lender would consider viable, if not for the coronavirus pandemic
• you can self-certify that your business has been adversely impacted by coronavirus

Businesses with a turnover over £45 million may be entitled to other government support.

Costs and repayment

The arrangement fees, interest and any other fees are covered by the government for the first 12 months. You may need to make capital repayments on term loans or asset finance. However, we would expect that short to medium-term capital repayment holidays will be available.

Security

Lenders won’t ask you for personal guarantees on savings or property for loans that are less than £250,000. For loans that are more than this amount, banks might ask for personal guarantees.

For any loans over £250k, the funder will require security (usually by way of a debenture or floating charge) over your business’ assets. Personal guarantees may still be required, at a lender’s discretion, for such facilities, but they exclude the Principal Private Residence (PPR) and recoveries under these are capped at a maximum of 20% of the outstanding balance of the CBILS facility after the proceeds of business assets have been applied.

Lending requirements

Key things to have in place when speaking to your lender are:

• The last two financial years accounts and year to date management accounts
• Short term weekly cashflow forecast (13-weeks) including aged creditors and debtors
• Current year forecast outturn and two years of financial forecasts (the challenge to forecasting at this time will be understood by lenders and should reflect your best assessment of the impact on the business)
• Details of how the business has been affected by COVID-19 and managements plan to trade out of the situation
• If personal guarantees are required completion of an assets and liability statement by relevant directors or shareholders
• The steps the shareholders have taken to exhaust all other options to support the business (including equity injections)

Larger Business Interruption Loan Scheme

Access to funding support by many of the UK’s larger mid-market businesses is likely to represent welcome relief another significant component of the UK economy. The recently announced Coronavirus Larger Business Interruption Loan Scheme (CLBILS) represents a significant extension of the original CBILS scheme that will provide potential access to liquidity for almost 10,000 UK businesses. The CLBILS scheme will allow participating lenders to provide facilities to eligible borrowers of up to £25 million.

Loans backed by the Government’s 80% guarantee will be offered at commercial interest rates. Any UK-based business with turnover between £45 million and £500 million will eligible to access the Scheme through a participating lender.

Click here to view the application process at the British Bank.

CBILS – Current accredited lenders and partners

The scheme is delivered through commercial lenders, backed by the government-owned British Business Bank.

There are 40 accredited lenders able to offer the scheme, including all the major banks. Click here to see which banks are offering this scheme.

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What other support are you entitled too?  Click here and find out within 6-8 questions.