How to use the Coronavirus Business Interruption Loans Scheme
The key facts of the scheme are:
- Maximum of £5 million – available on repayment terms of up to six years
- Government backed, partially guaranteed – up to 80% of the loan’s value would be guaranteed against the outstanding facility balance (subject to an overall cap per lender)
- Fee free – SMEs can access the scheme for no cost while lenders will have to pay to gain access
- A Year’s holiday – The government have agreed to make a Business Interruption Payment which will cover the first 12 months of interest payments and any lender-levied fees if applicable
- Variable finance terms – the loans and asset finance facilities will run up to six years while any overdrafts or invoice finance facilities will run up to three years
- Security – Depending on the lender, the scheme may be used for unsecured lending for up to £250,000. For amounts above this figure, the lender will look to establish a lack of security for businesses planning to use it. If they have security up to the amount wishing to be borrowed then the lender can offer them finance on existing or usual commercial terms without recourse to CBILS
While a welcome development for SMEs, the details can still hide a multitude of devilment which borrowers still need to be aware of.
Firstly, CBILS is temporarily replacing the Enterprise Finance Guarantee (EFG) and some of its statute remains. The positive side to this, is that the application process itself is relatively uniform and straightforward.
To begin with, under government instruction, banks were only lending under the preferable scheme rates if businesses weren’t eligible to access funding under normal commercial terms. This seemed to penalise otherwise good businesses caught out by Covid-19. After much kickback, the government has instructed the banks to now offer the preferable terms to all viable businesses hit by covid-19. This should be a game changer for future applications.
However, business owners using the EFG would have had to secure funding by using personal guarantees. There have been some reports that lenders are continuing to insist on these methods of security for CBILS funding which could be problematic for directors and business owners in future. This especially applies where banks are requiring guarantees from the full board, even where some directors might not also be shareholders. It should be said that not all banks are taking this stance, and we’re hopeful that further government guidance might level the field.
There have also been reports that as some bank branches have had to shut during the pandemic, customers of those branches in particular have struggled to find a conduit for their application. That is likely to be a short term teething problem, and we’ve become aware within the last couple of days that some of the high street banks have started to offer their staff ‘triple time’ to work through the crisis and help clear the ever increasing requests for applications.
Before any small business considers using the CBILS facility, they should also fully research some of the other tools being made available to help them manage during the pandemic.
This includes any potential grants, rates holidays, tax payment deferments and Time To Pay agreements. (link to our coronavirus advice page)
One of our team of expert advisors, safely working from home, can arrange a free virtual consultation with them to discuss what they need and the best way of achieving it.
We’ll also help them look ahead past the immediate period to what they’ll need when the economy and people start moving again and have a plan instead of scrambling to regain lost ground.