3 April 2020

Coronavirus - Economic Support from CBILS 03.04

A more detailed look at the Coronavirus Business Interruption Loan Scheme (CBILS), who it might apply to and advice on how to get access to it.

Coronavirus Business Interruption Loan Scheme (CBILS)
A UK wide scheme designed to help businesses affected by coronavirus to access loans of up to £5 million. The original scheme made allowance for loans of up to £5 million, available to business with a turnover up to £45 million. The scheme will be interest free for up to 12 months and be fee free. An expansion has been announced so that firms with a turnover between £45 million and £500 million can access Government-backed loans of up to £25 million.

The scheme has been set up with the intention of providing financial support to small and medium sized businesses (SMEs) that are losing revenue, and seeing cashflow disrupted, as a result of the COVID-19 outbreak.

Visit the British Business Bank for more details on how the scheme works.

Please note that the scheme encourages lending as the Government is providing security to the banks of up to 80% of the outstanding debt on the loan. However, the borrower always remains 100% liable for the loan. That said, at least nine of the main UK banks (Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland, Nat West, Ulster Bank, Santander, Metro Bank and Virgin) have now removed personal guarantee requirements for loans up to £250,000.

Two simple examples to depict how liability falls on debt following defaulted loans:

Example 1
£250,000 loan over a five year period.
Company fails after four years.
£50,000 of loan already repaid.
£200,000 outstanding.
£100,000 secured from company assets.
£100,000 outstanding.
It is this outstanding liability that is split between Government (80%) and the lending bank (20%).
Government £80,000, bank £20,000.

Example 2
£500,000 loan over a five year period.
Company fails after four years.
£100,000 of loan already repaid.
£400,000 outstanding.
£200,000 secured from company assets.
£200,000 outstanding.
Personal guarantee of 20% of outstanding debt (as it is a loan over £250,000) is £40,000.
£160,000 outstanding.
Government (80%) £128,000, bank (20%) £32,000.

Precise conditions and access may vary between banks but, on a practical level, businesses are advised to approach banks that they have an on-going relationship with in the first instance. It may just take too long to get through to a new bank and provide them with the information they will need to make an informed decision on your loan.

To get access to CBILS it will be crucial to satisfy the following criteria:

• Was the business viable before the onset of COVID?
• Is the business impacted now (to a point where it falls outside normal lending criteria but with support will be able to trade through/beyond the crisis)?

If not, it is likely that the bank will either refuse to lend or push towards normal lending procedures.

This is a new scheme and setting it up has been a huge task, banks have managing learning and implementing the scheme whilst dealing with a massive increase in enquiries and limitations imposed by branch closures and staff shortages as a result of coronavirus.

UPDATE, 02 April 2020
Currently there is an effective requirement for banks to offer commercial loans first. We are hearing that the Chancellor is set to remove this requirement in an attempt to speed up decisions and help push funding through. If such a requirement is removed this should help businesses that have had applications rejected on the grounds that their business was too strong, and perhaps if their business was not considered to be viable.

It has been reported that an increasing amount of banks are removing the personal guarantee requirements and efforts are being made to streamline the application and approval process. The British Business Bank and UK Finance are looking to see if some of the stems can be removed, and so simply procedures and facilitate cash getting to where it is needed.

Efforts are also being focused towards developing a scheme to assist targeting the stranded middle (those companies with a turnover above £45 million but not large enough to qualify for the CCFF (Covid-19 Corporate Financing Facility) scheme. This could possibly take the form of a CBILS+ scheme, where the current guarantees are expanded to cover larger companies, or a Guarantee Scheme. The BPIF has already been working with BEIS on this, we have identified the stranded middle companies in the Printing Industry to them. 

There is also lobbying pressure on Government to revisit grants and consider making more funding and more widely available. Similarly there is pressure to expand business rates relief in those regions that have not already done so.

UPDATE, 03 April 2020
The Chancellor has now instructed banks that personal guarantees for loans under £250,000 are not allowed.

A further change now removes the requirement that banks must offer commercial lending terms first. As such companies considered to have sufficient security to support commercial lending terms can no longer be prevented from accessing the scheme. This should significantly increase the number of businesses that have access to the scheme. However, the Treasury has not capped interest rates that banks can charge, even though the banks themselves can borrow at close to 0%.

The Government have also announce measures to help the stranded middle. Companies with a turnover between £45 million and £500 million will be eligible to access Government-backed loans of up to £25 million. Further details to come.

There have been some reported issues with the scheme, some of which have been addressed as a result of lobbying pressure. If you have any positive or negative feedback regarding CBILS we'd love to hear from you - please contact Kyle Jardine.

Please continue to regularly check our website for further updates as the situation evolves.