The Coronavirus Business Interruption Loan Scheme
30 September 2020: ICAEW's Corporate Finance Faculty explains the Coronavirus Business Interruption Loan Scheme (CBILS), introduced on 23 March and revised on 2 April, which provides support for businesses to access funding if certain eligibility criteria are met. From September new guidance regarding the ‘undertaking in difficulty’ test could mean that more companies will be eligible.
|OFFICIAL GUIDANCE:||Coronavirus Business Interruption Loan Scheme|
What is it and how can I get hold of the money?
CBILS has been introduced by the UK Government as a temporary measure with the aim of supporting the continued provision of finance to UK SMEs during the COVID-19 outbreak. The scheme is designed to provide lenders with a government-backed guarantee. The government has announced that CBILS will be demand-led and will be resourced accordingly, and, on 2 April, revised it to make more businesses eligible.
CBILS is administered by the British Business Bank and made available to businesses via more than 40 accredited lenders, including the major high street banks. Whilst details on the scheme are available on the British Business Bank web site, that organisation is a wholesale funder and businesses should apply via their existing bank or a lender accredited via the scheme.
UPDATE September: CBILS will be open for new applications until 30 November 2020.
Key features of the scheme
Up to £5m facility: The maximum value of a facility provided under the CBILS scheme will be £5m, available on repayment terms of up to six years but, from September. a lender may extend the term to up to 10 years.
Interest and fees paid by government for 12 months: The government will make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied fees, so smaller businesses will benefit from no upfront costs and lower initial repayments.
Security: For all facilities, CBILS can support lending to smaller businesses even where a lender considers there to be sufficient security. Where there is sufficient security available, it is likely that the lender will take such security in support of a CBILS facility.
Personal guarantees for facilities under £250,000: Cannot be taken.
Personal guarantees for facilities above £250,000: May be required at a lender’s discretion, and recoveries under these are capped at a maximum of 20% of the outstanding balance of the CBILS facility after the proceeds of business assets have been applied.
Finance terms: Finance terms are up to six years for term loans and asset finance facilities but, from September, a lender may extend the term to up to 10 years. For overdrafts and invoice finance facilities, terms will be up to three years.
80% guarantee: The scheme provides the lender (i.e. the bank or alternative lender) with a government-backed, partial guarantee (80%) against the outstanding facility balance. Recoveries are capped at a maximum of 20% of the outstanding balance of the CBILS facility, after the proceeds of business assets have been applied.
No guarantee fee for SMEs to access the scheme: There is no fee payable by smaller businesses to access the scheme. Lenders will pay a small fee to access the scheme.
The borrower always remains 100% liable for repayment of the debt: Whilst this is a very generous scheme, ultimately the borrower (i.e. the business customer) remains liable for repayment of the debt. Debt repayment holidays or payment deferrals will be at the discretion of the lender. If the lender can offer finance on normal commercial terms without the need to make use of the scheme, they will do so.
Eligibility and additional features
The scheme has been designed with the intention of offering considerable flexibility to SMEs. However, businesses would be wise to seek advice when applying for funds.
Company activity: The SME must be UK-based in its business activities.
Company size: To be eligible a company must have a turnover of no more than £45m and meet certain other criteria.
Viability: An SME must submit a borrowing proposal to a bank or approved alternative lender which, “were it not for the current pandemic, would be considered viable by the lender”. In effect this means that the lender must believe that the provision of finance will enable the business to trade out of any short-to-medium term difficulty. This is a very important condition and means that SMEs would be wise to prepare applications carefully and discuss their applications with both their preferred lender, accountant or business advisor.
Industry sectors: Facilities are also available to cover companies and individual traders operating in sectors not previously covered by the Enterprise Finance Guarantee scheme such as: haulage, agriculture, fisheries and aqua-culture.
UPDATE September: Businesses previously had to demonstrate that they were not an "undertaking in difficulty" as of 31 December 2019. New guidance means that the "undertaking in difficulty" assessment will be determined at the date of application for the scheme.
Ineligible businesses and sectors: Fishery, aquaculture and agriculture businesses may not qualify for the full interest and fee payment. The following trades and organisations are not eligible to apply: banks, building societies, insurers and reinsurers (but not insurance brokers); the public sector; employer, professional, religious or political membership organisations, or trade unions.