Banks and other finance providers recognise that the cashflow of small and medium sized businesses may be disrupted by the impact of Covid-19. The banking and finance industry is committed to supporting viable businesses in continuing to trade through these uncertain times. Banks and lenders remain open for business and are well placed to assist all businesses, including sole traders and SMEs, looking for support.
The Coronavirus Business Interruption Loan Scheme (CBILS) was announced by the chancellor as part of a series of government measures to support SMEs. Since the scheme’s launch on 23 March, the industry has worked with government and the British Business Bank to both enhance processes and widen the scheme’s eligibility. The scheme has been designed to help businesses manage their finances given the unprecedented situation many are currently facing. It aims to support those SME businesses that were trading successfully before Covid-19 but which may now experience lost or deferred revenues, or disruptions to their cashflow as a result of the current disruption.
This scheme is just one of a number of measures announced by government, more details of which can be found here.
What is the Coronavirus Business Interruption Loan Scheme?
The CBIL scheme provides lenders with a government-backed guarantee of 80 per cent on losses that may arise on facilities of up to £5 million. Under the previous scheme rules, lenders could only use the CBIL scheme in situations where they could not provide a facility under normal commercial terms. The CBIL scheme is now being expanded and will be available to viable businesses impacted by Covid-19, even if the lender would be prepared to offer the applicant a facility without the benefit of the CBIL scheme.
Lenders may require security for the facility, although where the facility is for less than £250,000, personal guarantees will not be taken. For facilities above £250,000, the taking of security is required although the taking of personal guarantees remains at the discretion of the lender (subject to limitations set out below). Previously businesses applying for facilities of over £250,000 under the CBIL scheme had to be assessed by lenders to establish “insufficient collateral” that would otherwise have qualified them for credit under normal commercial terms. This has now been removed as a requirement of the scheme, though lenders may still ask for this in line with their own credit policy when lending large sums of money. Primary Residual Property will never be taken as security for any CBIL facility.
The government will make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied charges.
How do I access the Coronavirus Business Interruption Loan Scheme?
The scheme is accessible through businesses’ normal points of contact with lenders. If businesses have concerns about their finances, they should contact their lender for support as early as possible. Given the high volumes of calls that all banks are receiving at the moment, including from vulnerable customers requiring immediate support, businesses may want to contact their lender online first. Lenders’ dedicated Covid-19 support pages will provide further information.
Businesses do not need to contact the British Business Bank to access this scheme. However, they may find some of the British Business Bank’s information on the scheme useful. This can be found here.
What are the criteria for businesses to be eligible for this scheme?
To be eligible for the scheme a business must be:
Able to confirm that it has been impacted by the coronavirus (COVID-19)
Based in the UK, with a turnover of no more than £45 million per annum
Seeking a facility up to £5 million
Must not be an “undertaking in difficulty” (more info below)
Operate within any business sector (Some different terms will apply for a small number of sectors, including for some agriculture, aquaculture and transport businesses)
Able to evidence viability (see below)
What if a business is viable but can’t get finance because of short-term disruption as a result of Covid-19?
Lenders will assess the viability of a business before Covid-19 disruption, accepting that there may be short-to-medium term performance impacts during the current environment. The scheme has been designed to help businesses manage their finances given the unprecedented situation many businesses are currently facing.
The scheme is designed to support those businesses that were trading successfully before Covid-19 but now face difficulties as a result of the current Covid-19 disruption. Lenders will have to assess that the business is viable, however they will be able to account for the exceptional concerns over the short-to-medium term business performance due to the impact of Covid-19. The finance should be deemed to be sufficient to enable a business trade through short-term cashflow difficulties.
How do I evidence my viability?
As with other external finance applications, businesses will need to have a sound borrowing proposal (notwithstanding the disruption caused by the current Covid-19 pandemic). The required details to evidence this will vary by lender but might include providing information such as recent accounts and trading information, as well as cash flow forecasts. Lenders will provide their own guidance on what information they need to assess a finance application.
Will I have to pay interest on my loan?
If a business is eligible for the CBIL scheme, then the government will make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied charges . After this twelve-month period, interest will be payable and lenders will let businesses know what this cost of this is. Whilst pricing will vary amongst lenders, the expectation is that interest rates beyond the 12-month ‘interest free’ period will take into account the existence of a guarantee from the UK Government.
With a loan facility it may be necessary to provide capital repayments on a regular basis, but lenders may be able to provide capital repayment holidays subject to discussions with them.
Businesses who borrow under the CBIL scheme will also not be subjected to early repayment charges should they chose to repay their financing before its term ends.
Businesses will still be 100 per cent responsible for paying the facility back, as well as interest and fees charged by the lender after the initial ‘interest free’ twelve-month period.
When can I access the scheme?
The scheme is available now. Banks are experiencing a significant number of calls, including from vulnerable customers, and it will be much quicker for businesses to check the guidance online to identify the best way to access the scheme.
While lenders are committed to providing access to the scheme for businesses some lenders may take a few more days to ensure the scheme can be deployed through their channels. Firms are working as quickly as they can to ensure businesses can access the support they need.
What products can I use through the scheme?
A variety of products can be covered by the scheme (as below). Each lender will have decided which products to become accredited to use:
Term loan facilities
Invoice finance facilities
Asset finance facilities
Not all lenders are accredited for all types of products and they will be able to discuss with businesses what they can offer to best suit their needs.
Does it cover all sectors?
The scheme covers all business sectors, although different terms may apply for businesses in a small number of sectors, including agriculture, aquaculture and transport.
Is there any limit on the term length of products under the scheme?
Products covered by the scheme have a maximum term of six years, however for overdraft and invoice finance facilities, please note that terms are up to three years.
Can I access the scheme through any finance provider?
Not all lenders are accredited by the government and some may only be accredited for certain products. Many lenders are working closely with the British Business Bank to become accredited as quickly as possible. Lenders will be able to tell businesses their accreditation status and for which products.
All lenders are providing guidance on the best way to access support on their websites. This information is being updated regularly to provide businesses with guidance and to help them access the finance they need.
Will the funds available run out?
The government has indicated that there is no maximum cap set for the amount of total lending to be supported through the new scheme – it will be demand led.
Therefore, there is no immediate need to approach lenders if a business does not need finance in the short-term.
Is the CBIL Scheme a loan or a grant?
The scheme is not a grant. The scheme provides a guarantee to a lender to allow them to provide finance, but businesses will still have to repay this loan or facility.
Business are liable for the debt and lenders may ask for security over business assets to support the borrowing facilities, and for larger facilities above £250k, may ask for personal guarantees to cover a portion of the facility (subject to limitations set out below).
The government has announced a number of support measures for businesses such as grants which businesses may be eligible for. Further information on these initiatives is available here.
What sort of personal guarantee or security will businesses have to provide?
Under the terms of the scheme, security may be required, however, personal guarantees cannot be used for CBIL facilities of £250,000 or less. If a CBIL Facility of £250,000 or less benefits from an existing personal guarantee or at any time in the future benefits from any personal guarantee, the lender cannot make a demand or otherwise enforce such a guarantee for any amounts due under the CBIL Facility or apply any proceeds from such a guarantee to the CBIL Facility.
For facilities above £250,000, the taking of security is required, although the use of personal guarantees remains at the discretion of the lender. Following changes to the scheme, SMEs with sufficient security to access a loan under normal commercial terms can still access the CBILS. Primary Residual Property will never be taken as security for any CBIL facility.
If a personal guarantee is used in relation to a CBIL facility over £250,000 including where such a facility benefits from an existing or future personal guarantee, the following rules apply:
The lender can only make a demand on a personal guarantee once they have realised all other collateral that is available to support such CBIL Facility. This includes collateral that is available to both the CBIL Facility and to other facilities.
Lenders may only make a demand on a personal guarantee in connection with the CBIL Facility, for a maximum amount equal to 20% of the amount of the facility that remains outstanding after the proceeds of all other available collateral have been applied.
Why are some turned-around and high-growth firms struggling to access CBIL and what is an ‘undertaking in difficulty’?
The CBIL Scheme has been authorised under the European Commission’s Temporary Framework for State aid measures. A key restriction this has placed on the scheme is that it cannot be used where an applicant was an ‘undertaking in difficulty’ as at 31st December 2019. Lenders cannot use the scheme for SMEs who have accumulated losses greater than half of their subscribed share capital as at 31 December 2019, as well as businesses that entered into collective insolvency proceeding. These state aid rules may also mean that certain high-growth businesses which may have made losses in recent years are not eligible for the scheme even where they have positive cash-flow trajectories. Challenges relating to these rules also include those smaller businesses which might have limited subscribed share capital where any historic losses could lead to the SME being excluded even though trading may be satisfactory today.
In short, the scheme is:
A borrowing facility to provide cashflow support to viable businesses experiencing lost or deferred revenues, or disruptions to their cashflow due to Covid-19 or for funding for investment
Provided as a loan, overdraft, invoice finance facility or asset finance facility
Available for products with a maximum term of six years (three years for invoice finance and overdraft facilities)
Accessed through lenders if they are accredited and available on lending up to £5 million
Due to go live in most cases from the week commencing 23 March 2020
Open to eligible SMEs which are:
Able to confirm that it has been impacted by the Coronavirus (COVID-19). UK based, with sales or turnover of no more than £45 million per annum
Operate within any business sector (different terms will apply for a small number of sectors, including: Agriculture, Aquaculture and Transport. More details on this will be available here
Have a sound borrowing proposition and are viable (notwithstanding short-term disruption)
Not an ‘undertaking in difficulty’ (more information above)
The government will make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied charges.
Lenders may require security for the facility, although where the facility is for less than £250,000, personal guarantees will not be taken. For facilities above £250,000, the taking of security is required, although the use of personal guarantees remains at the discretion of the lender (and is subject to limitations set out above). Following changes to the scheme, SMEs with sufficient security to access a loan under normal commercial terms remain eligible for the CBILS.
Lenders stand ready to support businesses throughout the period of disruption caused by Covid-19 and beyond.