Coronavirus Business Interruption Loan Scheme (CBILS)

*Updated 19 May*

The Government announced changes to the Coronavirus Large Business Interruption Loan Scheme on 19 May, to include that larger businesses will benefit from loans up to the lower of 25% of turnover, or £200m. The changes are expected to go live on 26 May – we await full details of the update to the Scheme.

The Coronavirus Business Interruption Loan Scheme (“CBILS”) was announced by the Government, and opened for applications from 23 March 2020.  CBILS allows UK companies with viable businesses to respond to cash flow issues during the COVID-19 outbreak. 

Following initial difficulties for many SMEs looking to access the Scheme, further guidance was published by the Chancellor on 3 April 2020 and the expanded Scheme was operational with lenders from Monday 6 April 2020.

CBILS Overview

• CBILS is being provided by the British Business Bank (“BBB”).
• The scheme provides the lender with a government-backed, partial guarantee (80%) against the outstanding facility balance, potentially enabling a ‘no’ credit decision from a lender to become a ‘yes’.  Proof that a business has insufficient security is no longer a condition to access the Scheme.
• The Government will also cover the first 12 months of interest payments and any lender levied fees.
• The borrower does remain liable for repayments of the capital in those first 12 months – although some lenders are also offering capital repayment holidays during the first 12 months from drawdown.
• The maximum value of a facility provided under the scheme is £5m – we understand that some banks are setting lending limits at 25% of FY2019 turnover or 2x the annual wage bill.
• The lender can choose to use the scheme for unsecured lending of £250k and under – the Big Four banks have agreed that they will not take personal guarantees as security for lending below £250k.
• For facilities above £250k, personal guarantees may still be required at the lender’s discretion, however, this will exclude the Principal Private Residence, and recoveries will be capped at a maximum of 20% of the outstanding balance of the CBILS facilities. In other words the portion not secured by the Government.
• Products available include (note, not all lenders can provide every type of facility below):
  • Term facilities;
  • Overdrafts;
  • Invoice finance facilities; and
  • Asset finance facilities.

Eligibility

• Eligibility Checklist for SMEs:
  • Application must be for business purposes, and will be used to support primarily trading in the UK;
  • Business must be UK-based (can be non-UK owned), with a group turnover of no more than £45m p.a. and must generate more than 50% of its turnover in the UK;
  • Operate within an eligible industrial sector (ineligible sectors include: Banks, Building Societies, Insurers and Reinsurers (but not insurance brokers); the public sector including state funded primary and secondary schools; and professional, religious or political membership organisation or trade unions;
  • Have a sound borrowing proposal which, were it not for the current pandemic, would be considered viable by the lender, and for which the lender believes the provision of finance will enable the business to trade out of any short-to-medium term difficulty; and
  • Financing terms are from three months up to six years for term loans and asset finance, and up to three years for revolving facilities and invoice finance.
• If one lender turns you down, you can still approach other lenders within the Scheme – each lender distributing the fund will assess proposals on a case by case basis, so will all have their own criteria for lending and assessment of risk.

How do businesses apply for CBILS?

• Any businesses interested in CBILS should approach one of the 40+ accredited lenders with their borrowing proposal (see further details below) – financing is still received from the lender, and not the BBB.
• BBB advises that businesses consider approaching one or more participating lenders to discuss their needs.
• Ideally approach lenders via their website in the first instance, as phone lines are likely to be very busy, and branches will be limiting capacity / potentially closing – Full details can be found on the BBB website. 
• Simple to apply, and should take no longer than a standard application – it is expected to take several weeks in any case for funding to be provided.
• Lending rates are driven by a risk and reward matrix, so just because the base rate is now at an all-time low it doesn’t necessarily mean cheap debt if the businesses is still deemed “risky”.

What do businesses need to provide to lenders?

Businesses will need to prepare and submit a borrowing proposal to lenders, which as noted above demonstrates that it is a viable business were it not for the current pandemic.  We have outlined the key requirements that a business should consider in its borrowing proposal in advance of applying to lenders:

Financial information:

• Recent full annual financial statements (some lenders are asking for up to 3 years financial statements).
• Up to date management accounts covering from the last financial year end to the latest date possible.
• 12-24 months financial projections.
• Cash flow forecast covering the next 12 months (weekly if possible), detailing any key assumptions around disruption – where possible various scenarios should be provided to demonstrate the business can support the financing sought.
• Last 6 months bank statements for the business.
• Current aged creditor and debtor listings.
• List of all Assets and Liabilities of the business.
• Where applicable, evidence of compliance with recent applicable financial covenants and financial information covenants.

Business Performance and Mitigating Measures

• Commentary around the recent and historic performance of the business.  Also share any specific performance issues (turnover/profitability) prior to COVID-19 that could have had an impacted on your business.
• What impact has the COVID-19 outbreak had on your business, and what are the financial implications?
• What changes or measures is the business making in the short to medium term to mitigate the effects of COVID-19?   What measures will the business take to help drive performance either back to pre-virus levels or beyond?  How long do you believe it will take for the business to get back to pre-COVID-19 levels after the pandemic is resolved?
• What other options have been explored? e.g. furlough, rate relief, Time To Pay arrangements, VAT deferral, local authority or other grant or loan schemes.

Loan Requirements

• Provide details on the amount of the borrowing request and the term, as well as how this amount has been derived.
• Demonstrate how the funds will be used to address the cash shortfall caused by COVID-19, and how the business will be able to repay the loan.
• Financial analysis showing that the business would have been able to service the debt sought had it not faced difficulties from the COVID-19 outbreak.
• Details of all current and existing credit, hire purchase or loan arrangements (and details of any existing security / guarantees in relation to these).

If you have any questions at all, please do not hesitate to contact Chris Thompson, or your usual AAB contact.