Coronavirus Business Interruption Loan Scheme
Coronavirus Business Interruption Loan Scheme
Can the government’s Coronavirus Business Interruption Loan Scheme support your business?
If your business is experiencing emergency cashflow issues due to COVID-19, and you anticipate being able to trade out of this difficulty when the economy stabilises, then the Coronavirus Business Interruption Loan Scheme may prove invaluable for business continuity. The goverment announced significant expansions to the scheme with effect from 3 April 2020, and so any businesses whose applications were declined prior to this should re-approach their lenders.
What is it?
The Coronavirus Business Interruption Loan Scheme (CBILS) provides current lenders with a government-backed guarantee for 80% of the facility, which essentially means that the exposure to lenders is reduced significantly. This means that a credit decision is much more likely to become a ‘yes’.
The scheme can provide facilities of up to £5m for UK businesses with turnover under £45 million which are experiencing increased costs or disruptions to their cashflow. Where businesses are in a group, the £45 million threshold applies to the group's turnover. Note that there is a separate scheme, the Coronavirus Large Business Interruption Loan Scheme (CLBILS), for businesses with turnover above £45 million. Avaliable from 4 May, the government has also launched the Bounce Back Loan Scheme for borrowings of £50k or less, which may be more attractive to businesses; visit our COVID-19 hub for further details of this.
CBILS is available through the British Business Bank’s accredited lenders and partners, which can be found on the British Business Bank’s website here. The scheme covers the following finance facilities:
- Term loans
- Asset finance
- Invoice finance
Whilst the scheme is aimed at businesses from all sectors, the business must:
1. Be UK-based and generate more than 50% of its income from trading goods or services (with turnover of less than £45m per year for the CBILS, as noted above).
2. Have a borrowing proposal which would be considered viable by the lender, were it not for the current pandemic. In other words, the provision of finance should enable the business to trade out its short-to-medium-term difficulty.
3. Self-certify that it has been adversely impacted by the coronavirus.
4. Not have been classed as being a "business in difficulty" on 31 December 2019, if it is applying to borrow £30,000 or more.
How to apply
Businesses should approach current finance providers with a borrowing proposal, ideally via their website, as phonelines and branches have limited capacity during the pandemic. If one lender declines your application, you can still approach other lenders within the scheme.
To apply for the loan, we recommend the following to support your case, but do not worry if you do not have everything, as lenders will have their own requirements, and it also depends on how much you are applying for:
- how much you will need, what you will use it for, and the timescale over which it will be needed
- three years' statutory accounts;
- management accounts to date, showing performance against budget to 29 February 2020 (i.e. pre COVID-19);
- forecasts for at least the next 12 months, with sensitivity analysis;
- 13-week short-term rolling cashflow forecast;
- details of actions taken to date to use government support measures (e.g. furloughing staff under the Job Retention Scheme);
- details of "self-help" actions, such as freezing dividends or capital spend;
- planned actions after the lockdown to show how you intend to recover;
- details of current debt held by the business, if you are not approaching your current lender;
- list of assets and any recent asset valuations; and
- details of any investment made in the business to date, by shareholders or third parties.
It should be noted that, for facilities above £250,000, lenders may insist on personal guarantees, but, following changes to the initial scheme rules, they cannot include your home ("Principal Private Residence"). For facilities under £250,000, no personal guarantees of any form are taken by lenders.
Once a loan is obtained, the business remains liable for 100% of the outstanding facility, and it is only if the company defaults that the government steps in.
However, the government will make a Business Interruption Payment, covering the first 12 months of interest payments and any arrangement fees, leaving the company liable for capital repayments only during the first 12 months.
- The maximum value of any facility offered under the scheme is £5m.
- The scheme was opened on 23 March 2020, and will initially run for six months.
- Repayment terms:
- Up to 6 years on loans and asset finance facilities.
- Up to 3 years on overdrafts and invoice finance facilities.
- There are no fees paid by smaller businesses to access the scheme.
- Where there is sufficient security available, it is likely that the lender will take such security in support of the CBILS facility.
- Facility of £250,000 and under – no personal guarantees are required.
- Facility in excess of £250,000 – personal guarantees may be required, but they will be capped at 20% of the outstanding value of the facility after the proceeds of the business assets have been applied. A Principal Private Residence cannot be taken as security to support a personal guarantee or as security for a CBILS-backed facility.
- The borrower remains 100% liable for the outstanding facility.
- If one lender turns you down, you can still approach other lenders within the scheme.
- CBILS does not prevent a company accessing other aid to help deal with COVID-19, such as business rate reliefs, or grants unrelated to the CBIL scheme.
We will continue to keep you updated in the coming days, weeks and months, as the government releases more detail on the support available to businesses and individuals. We cannot emphasise enough that “cash is king”, and the preservation of liquidity is critical during the current challenges.
Please get in touch with your usual contact if you’d like any assistance with the support available. All of our team is now following the government advice and working from home and our main office is now closed. The remote working technology is operating remarkably well, with many people adapting quickly to having online meetings. Please continue to use the main telephone number, 01892 546546, or any of our usual channels to communicate with our team. If the main line is busy, please do leave a message and we will get back to you.
Please note: The information above is based on our understanding and interpretation of the government's guidance as of 5pm on Thursday 30 April 2020. Changes to government guidance on a daily basis may mean that this information is not accurate or complete beyond this time.