The Coronavirus Business Interruption Loan Scheme

The Coronavirus Business Interruption Loan Scheme (CBILS) Help-sheet

CBILS is a new scheme, announced by The Chancellor at Budget 2020, that can provide facilities of up to £5m for smaller businesses across the UK who are experiencing lost or deferred revenues, leading to disruptions to their cashflow.

CBILS supports a wide range of business finance products, including term loans, overdrafts, invoice finance and asset finance. The scheme provides the lender with a government-backed guarantee potentially enabling a ‘no’ credit decision from a lender to become a ‘yes’. The borrower always remains 100% liable for the debt.

UPDATE – Monday 6th April

Changes have been announced to take effect from Monday 6th April but need to be applied retrospectively to any offer made since 23rd March 2020. Most banks will now need to use their resources to amend previous offers and applications.

  • For facilities under £250,000, use of personal guarantees not permitted under the scheme
  • No requirement to look at other commercial loans first

This is a welcome amendment and will streamline applications for banks, as long as lenders are also recognising that interest rates will need to be at reasonable rates. The original thinking in the idea of banks looking to the suitability of their commercial products first, was because they could have been cheaper.  This removes that option, and whilst it brings much needed speed into the application process, banks must have also been asked to offer terms at reasonable rates, nearer 3%- 6% over base, than the originally quoted 20% and 30% offers which were being discussed in the earliest days of the scheme.

  • Viability assessment unchanged but for small loans this determination could be based on the lenders’ internal credit models

This will hopefully mean that detailed cashflows are no longer required, and instead banks can utilise their own assessment of the customer based on their previous management of their existing facilities, for example the flow of money through their bank accounts and whether they keep within their overdraft facilities, make their loan repayments on time etc.   All lenders score customers’ performance based on their banking activity, on a regular basis.

This is a welcome amendment to allow for faster processing of applications, but we would still encourage all business owners to prepare and update their cashflow forecasts, so that they can be sure they can still afford the repayments and interest when they become due.

  • Insufficient collateral requirement removed, allowing those SMEs who are considered to have sufficient collateral to access CBILS facilities; but: Note 1 to the release says: “Please note that where there is sufficient security available, it is likely that the lender will take such security in support of a CBILS facility”

So whilst this does now open up the scheme to allow banks to use it for customers who would previously not been able to access it, because they had other security, it does not mean that the facilities will be unsecured, even for facilities less than £250k.

The owners or directors will no longer have to give Personal Guarantees, as explained above, but the business will still have to provide a charge over other security, most likely in the form of a fixed and floating charge and debenture, if it is a limited company, or charges over specific assets for unincorporated businesses.

The banks may be minded to encourage the use of CBILS in conjunction with Invoice Finance facilities, to enable them to secure a higher % of security over the book debts (based on changes to UK legislation since Brumark/Spectrum Plus rulings c.2005.) Book debts cannot now be said to have a fixed charge, and therefore to be more preferential than a floating charge, unless the debtors are managed in a separate bank account, such as in a factoring or invoice discounting facility)

  • Finally, it has been seen that the maximum facility previously being offered by tier 1 lenders was a maximum of 25% of 2019 turnover or 2x annual wage bill, whichever is greater. 

There is no mention in the latest release if this is still part of the guidance for lenders.  This can be restrictive for some of the smallest businesses when the minimum loan offered by some lenders, including Barclays Bank, is £25,001.

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CBILS: KEY FEATURES

  • Up to £5m facility: The maximum value of a facility provided under the scheme will be £5m, available on repayment terms of up to six years.
  • 80% guarantee: The scheme provides the lender with a government-backed, partial guarantee (80%) against the outstanding facility balance, subject to an overall cap per lender.
  • No guarantee fee for SMEs to access the scheme: No fee for smaller businesses. Lenders will pay a fee to access the scheme.
  • 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.
  • Finance terms: Finance terms are up to six years for term loans and asset finance facilities. For overdrafts and invoice finance facilities, terms will be up to three years.
  • Security: At the discretion of the lender, the scheme may be used for unsecured lending for facilities of £250,000 and under. For facilities above £250,000, the lender must establish a lack or absence of security prior to businesses using CBILS. If the lender can offer finance on normal commercial terms without the need to make use of the scheme, they will do so.
  • The borrower always remains 100% liable for the debt.

AM I ELIGIBLE?

Smaller businesses from all sectors can apply for the full amount of the facility. To be eligible for a facility under CBILS, an SME must:

  • Be UK-based in its business activity, with annual turnover of no more than £45m
  • Have a borrowing proposal which, were it not for the current pandemic, would be considered viable by the lender, and for which the lender believes the provision of finance will enable the business to trade out of any short-to-medium term difficulty.

Please note: If the lender can offer finance on normal commercial terms without the need to make use of the scheme, they will do so.

HOW CAN I ACCESS THE SCHEME?

CBILS is available through the British Business Bank’s 40+ accredited lenders, which are listed on the British Business Bank website here.

Note: Not every accredited lender can provide every type of finance listed. 

In the first instance, businesses should approach their own provider – ideally via the lender’s website. They may also consider approaching other lenders if they are unable to access the finance they need.

Decision-making on whether you are eligible for CBILS is fully delegated to the 40+ accredited CBILS lenders. These lenders range from high-street banks, to challenger banks, asset-based lenders and smaller specialist local lenders.

It’s important to note that these loans are only approved in situations where banks would normally have lent, subject to their standard lending criteria, but viability has been impacted by Covid-19. The criteria is based on historic trading (an average of the last 3 years). It is only available to cover essential expenditure and critical payments. Lastly, the scheme rules are such that a maximum of 25% of 2019 Annual Turnover or double the Annual Wage Bill is available.

The lenders included are after very specific information to support all applications so we would advise you work with us to begin collating the following information:

  • Last 3 years full accounts with detailed P&L
  • Last 6 months business bank statement
  • Up to date management accounts
  • Aged debtor and creditor lists
  • Confirmation of any outstanding debt (provider, term, repayment)
  • Statement of personal assets, liabilities, income and expenditure from all Directors – Paragraph on how Covid-19 has affected the business and what the funds will specifically be used for.

Other information they will need could include:

  • How will the funds be used to address the cash shortfall caused by Covid – 19
  • Amount required and how this amount has been derived. Expectation is that this amount is to cover essential expenditure and critical payment to get through the interruption
  • On what basis has the amount been calculated. Has this been based on existing income and expenditure levels or future levels and if future what assumptions used
  • Annual sales T/O for 2019
  • Annual wage bill for 2019
  • Number of employees
  • What other government schemes have you accessed and used and amount involved
  • What are your largest costs currently i.e. staffing costs; business premises costs; stock etc. and what have you been doing to reduce them
  • How will the loan support the longevity of the business
  • Do you have up to date cash flow forecasts and are they based on existing trading levels or upon assumption (if so what)
  • When the Pandemic is resolved, how long do you believe it will take to start recovery? What challenges will you face e.g. future loss of contracts/staff availability
  • What changes are you making in the short and longer term to help drive business performance back to pre-virus levels or beyond?

TIME TO FUNDS

A significant factor in the lending process is the “Time to Funds”. I.E how long does it take from submitting an application to receiving money in your account to pay e.g. rent, payroll and suppliers. Our estimation is that this will be around 2 – 4 weeks for unsecured (meaning mostly term loans or invoice finance) and 4 – 12 weeks for secured (lending secured against property, assets etc)

The reason for this is that secured finance will typically require processes such as property valuations or second charges. Many of which take multiple weeks even at the best of time.

As a result, businesses may wish to apply for non-CBILS products alongside CBILS to have a wider range of options to choose from.

HOW DO I APPLY?

In the first instance, you should approach your own provider – ideally via the lender’s website. You may also consider approaching other lenders if they are unable to access the finance they need.

Alternatively, our finance partnership with Capitalise gives us access to over 100 lenders, 10 of which are CBILs accredited. The benefits of the Capitalise platform is that their matching service will identify all products your business is eligible for, including the CBILs lenders. 

IS THERE A FEE IF I GO THROUGH YOU?

We usually charge a Raising Finance service fee of £500.00, however due to these unprecedented times and the urgency of your applications, we will be waiving this fee to help you through this process. If you are interested in approaching funding through us, please fill in this form and we will kick start the process through the Capitalise platform.

Useful Links:

Raffingers Forecast Model

Raffingers Cashflow Forecast Template

Raffingers Assets and Liabilities Statement Template