For further information on CBILS, business finance or other ways that we may be able to assist your business during the COVID-19 crisis, please email company and commercial specialist, Frank Scott-Ashe, to arrange an initial, informal chat.
Here, Frank considers the Coronavirus Business Interruption Loan Scheme (CBILS) and in particular how the rules have been relaxed for smaller businesses.
- SMEs in cash flow crisis
- Who is eligible for CBILS?
- What does CBILS offer?
- How to apply for CBILS?
- What are the alternatives to CBILS?
SMEs in cash flow crisis
Research undertaken by an accountancy group (the Corporate Finance Network) predicts that 18% of SME’s could fail as they run out of cash by the end of April as result of the lockdown. Where the current restrictions stay in place for 3 months or more, the proportion of SME’s facing collapse in June increases to 31%.
Initial take up of the Coronavirus Business Interruption Loan Scheme (“CBILS”), launched on 23rd March, has been slow in spite of businesses needing emergency funding and the chancellor pledging during the Budget that he would do whatever it takes to support the UK economy during this crisis. As at 2nd April, out of 130,000 enquiries made to the banks to access the scheme, only 983 businesses had been approved for finance.
The above has led the chancellor to relax the rules to make the scheme more accessible, by making the following announcements on 2nd April:
- Business owners would not be required to give a personal guarantee on loans or other credit facilities under £250,000.
- Other commercial facilities would no longer need to be explored before accessing the scheme.
- Insufficient security is no longer a condition to access the scheme.
The above measures appear to have had the desired effect as, prior to the chancellor’s announcement, £90m of finance had been approved by lenders and, by the end of the following day, the amount had already more than doubled.
Who is eligible for CBILS?
SME’s with an annual turnover of up to £45m who are losing revenue and seeing their cashflow disrupted as a result of the COVID-19 outbreak may apply.
They must however demonstrate to the lender that the business is viable were it not for the pandemic. If the business was already loss-making, it will not be eligible.
What does CBILS offer?
Credit facilities of up to £5 million, comprising of the following:
- Loan or asset finance for up to 6 years.
- Overdraft or invoice finance facilities for up to 3 years.
The Government is providing the following financial support:
- Interest on the credit facility for the first 12 months is covered by the Government. The borrower pays no interest during this period.
- The Government guarantees to the lender that it will cover 80% of the outstanding balance left over after the lender has enforced its rights against the borrower.
It is important to bear in mind that the borrower remains 100% liable to the lender for the debt and the lender will first exercise its rights against the borrower (and use the proceeds from the sale of the borrower’s assets towards settlement of the debt) before it calls in the Government guarantee to cover 80% of the balance.
For facilities above £250,000, personal guarantees may be required by the lender, however note the following:
- The lender would not be able to take security over the business owner’s home (ie the principal private residence).
- Any amount recovered by the lender under the personal guarantee is capped at 20% of the outstanding balance after the proceeds of business assets have been applied.
How to apply for CBILS?
The business should approach one of the 40+ UK based lenders that are accredited by the British Business Bank. They include high street banks, challenger banks, asset-based lenders and smaller specialist local lenders. They make the decision whether to lend to the business.
The lender may require the following information to show that the business can afford to repay the loan:
- Management accounts.
- Cash flow forecast.
- Business accounts.
- Historic accounts.
- Details of assets.
Approaching your existing bank or lender is generally advisable as the process is likely to be quicker or even automated especially where a smaller amount of credit is being sought. Alternatively, consider using a broker who will be able to guide you through the best options available on the market whether they are under the CBILS or otherwise.
Further details on the scheme may be accessed here.
What are the alternatives to CBILS?
Business owners may find the scheme not appropriate for them for a number of reasons such as:
- The business may already have substantial credit facilities in place making it undesirable to take on further debt, especially where there is no certainty as to when (or if) normality might resume in its sector.
- The business was already loss-making.
Where the above scheme is not suitable and/or the other support measures offered by the Government and Local Authorities in response to the pandemic are not available or insufficient, consider the following:
- Other steps to mitigate the impact of the coronavirus outbreak as mentioned in my previous article, for example, renegotiating contracts with suppliers and/or customers or taking advantage of the HMRC’s Time To Pay scheme.
- For commercial landlords or tenants, suggest the possibility of a rent holiday to ease the financial burden on the tenant. This would give the landlord some peace of mind that the premises remain occupied and they would retain a tenant that is known to them. More information is available here.
- For start ups in the first two years of trading, loans of £500 to £25,000 at interest of 6% per annum may be available under the British Bank’s Start Up Loans programme.