A brief overview of the Coronavirus Business Interruption Loan Scheme (CBILS) including key features, eligibility, how to access and the information you need to provide.
As changes to CBILS go, the latest did catch me out and I did read it first with some disbelief – the impact of which can be summarised as follows:
“To speed up the provision of finance to small and medium-sized businesses under CBILS, the largest seven SME lenders (Barclays Bank UK, Danske Bank, HSBC, Lloyds Bank, NatWest, Santander and Virgin Money) have stated that rather than relying on businesses providing forecasts and business plans in applications, lenders will use their own information.”
Initial conversations with managers at two of those banks have cemented my view, that despite the dropping of the mandatory requirement for projections / forecasts from the required information for a CBILS submission, they will be useful in pre-empting the questions from the banks on rationale from quantum of funding required. (And that is aside from the business’ own need for projections as part of their self-assessment of business viability and debt serviceability – I will write separately on this).
For now I have not rewritten the section “Information required” but I may have to once the implications of the most recent change filter through into the CBILS assessment process.
Key features of CBILS:
- 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. A number of the banks are limiting the amount that can be applied for to:
- 2 x annual wage bill or
- 25% of turnover
- 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 most (*) smaller businesses will benefit from no upfront costs and lower initial repayments. However as the funds are those of the individual bank / alternative lender, the interest after the first 12 months and duration of any capital repayment holidays will vary between lenders
- 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
- Insufficient security is no longer a condition to access the scheme
- No personal guarantees for facilities under £250,000
- Personal guarantees may still be required, at a lender’s discretion, for facilities above £250,000, but they exclude the Principal Private Residence (PPR) 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
- The borrower always remains 100% liable for the debt
(* = Fishery, aquaculture and agriculture businesses may not qualify for the full interest and fee payment)
Smaller businesses from most (**) 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 the lender would consider viable, were it not for the current pandemic
- Self-certify that it has been adversely impacted by the Coronavirus (COVID-19) (See further below)
** = The following trades and organisations are not eligible to apply: Banks, insurers and reinsurers (but not insurance brokers); Public-sector bodies; Further-education establishments, if they are grant-funded and State-funded primary and secondary schools.
Access to the scheme
CBILS is accessible through the British Business Bank’s 40+ accredited lenders, which are listed on the British Business Bank website found here.
The British Business Bank made the following statements in this regard:
- 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. We have noted that some banks only seem to be lending to existing customers – this may well change once the initial batch of queries are dealt with
- 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
- Given there is likely to be a big demand for facilities, they ask you to please:
- Consider applying via the lender’s website in the first instance. Telephone lines are likely to be busy and branches may have limited capacity to handle enquires due to social distancing
- Consider the urgency of your need – it is possible that some businesses may be looking for regular longer-term finance rather than emergency finance, and there may other businesses with a more urgent need to speak with a lender
The key for a CBILS application, in addition to the normal elements of a loan/ overdraft application, appears to be two questions:
- You must show in your borrowing proposal that were it not for the current pandemic, the lender would consider your business viable
- You must also self-certify that your business has been adversely impacted by the Coronavirus outbreak
I will be interested to see what the self-certification (2nd bullet point above) means in practice and specifically how, if at all, it impacts on documentation required by the lenders. For now I still see the following as required:
- Prove the business was viable pre Covid-19 (and further at least one of the high street banks will look at last financial year to assess whether a business could have repaid the CBILS borrowing last year and similarly on any pre Covid-19 projections that business may have prepared)
- Prove the cash flow issues facing the business attributable to Covid-19
Therefore, it is important to get prepared so that you can access appropriate funding as soon as possible. Lenders will need companies to provide key information, specifically – projections, summary of historical results and an impact analysis of Coronavirus. This information can be prepared now and options reviewed to assess the most appropriate funding source. More general tips from my colleagues can be found here and some top tips for preparing financial projections here.
For those clients who require support to produce this information, we have pulled together a template document in order to streamline the process, please contact email@example.com