Only 9 days ago we discussed the new loan scheme affectionately called CBILS (Coronavirus Business Interruption Loan Scheme) and whether it was going to be the right answer for businesses looking for cash to help ease the problems caused by the current economic turmoil. (Read the post here : Time to talk loans )
A lot has happened since, and after a significant amount of lobbying the Government has announced significant revisions to CBILS that will come into effect from Monday 6 April 2020. These announcements open up the scheme to a wider range of businesses, but is it right for you and your business.
A recap on the scheme
Around 40 lenders are accredited to provide funding under the scheme. All of the high street clearing banks who account for the majority of business banking accounts are included.
These lenders will make a decision as to whether a business should be funded through the scheme. They will do this by making a normal credit decision that will be based on the business plan and supporting financial documents, cash flow and projections etc. If you already bank with the lender then they may also look at the internal data they hold about the business.
Loans to UK-based SMEs with turnovers of up to £45 million are capped at £5 million and must be repaid over a term of six years or less. Other types of lending such as overdrafts and invoice finance facilities will have shorter three year terms. The government is guaranteeing 80% of the funding (to ensure there is more lending) and there is an interest free period of 12 months for most businesses.
As the borrower a business remains fully liable for the debt.
However, until now, CBILS has only been open to businesses that were unable to access a facility on normal commercial terms.
HM Treasury has now confirmed that from Monday 6 April 2020 any businesses that meet the main criteria must be considered for a CBILS facility, even if they would otherwise qualify for a commercial facility.
Am I eligible?
The British Business Banks says that businesses that meet the following conditions must be considered for CBILS:
- Be UK-based in its business activity
- Have an annual turnover of no more than £45 million, of which more than 50 per cent is generated through trading activities
- 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).
Read the guidance from the British Business Bank.
Funding can be in the form of loans, overdrafts, invoice financing or asset finance, although each lender will be able to choose which elements of the scheme it supports.
Facilities are available from £1,000 to £5 million, subject to a lender’s criteria. CBILS will be interest-free for the first 12 months, as the Government has guaranteed to cover these payments during this period.
The Government and the British Business Bank, which is helping to administer CBILS, have confirmed that no setup fee will be charged.
Am I liable for all of the debt?
The borrower will remain 100 per cent liable for the debt. An 80 per cent guarantee offered by Government is simply to provide some recourse for the lender in the event of a borrower defaulting on their debt.
Do I need to provide a personal guarantee?
The British Business Bank has confirmed that the lender can only require personal guarantees for facilities of £250,000 or more. However, where personal guarantees are required:
- 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 British Business Bank has produced a snapshot of the security required under the scheme.
Before making any application it’s important that you have developed a solid plan and have a secure business. Many of the clients we are talking to are still in the secure phase of the recovery model and remain evaluating the impact on cash flow of the various grants, tax deferments and other mitigating actions, such as furloughing employees, that have been taken.
Once the initial review of predicted cash flow has been done you will either:-
- Require an injection of cash to fund survival to 30 June 2020, or
- Have sufficient cash flow to survive to 30 June 2020 and be looking for funding to secure the business through the recovery and re-build phase.
Your next step should be to speak to one of our funding specialists. With a knowledge of the funding available and experience in making applications to a range of different funders, Richard Hallsworth and Stephanie Smith are on hand to help you make the right choice.
“With so many lenders out there and a vast number of options it’s important that a comprehensive review is undertaken to match the best source of finance with the business.”
They will guide you through the identification and selection process and then be at your side as you deal with the paperwork and negotiations. Finally they will help you update your plans to make sure the funding is going to be sufficient for your needs.
If you are interested in learning more about how CBILS could help fund your business please contact either Richard Hallsworth or Stephanie Smith on 01522 815100.