The Coronavirus Business Interruption Loan Scheme (CBILS) has now been launched to support small businesses impacted by the coronavirus pandemic. Businesses can apply direct to participating lenders for facilities of up to £5m for smaller businesses across the UK who are experiencing lost or deferred revenues, leading to disruptions to their cashflow.
What are the features of the scheme?
The scheme provides the lender with a government-backed guarantee against the outstanding facility balance, potentially enabling a ‘no’ credit decision from a lender to become a ‘yes’.
- Up to £5m facility: subject to lender assessments, including affordability checks.
- 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
- 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: No personal guarantees for facilities under £250k. Personal guarantees of any form cannot be taken under the scheme for any facilities below £250k. For facilities above £250 personal guarantees may still be required, at a lender’s discretion, but 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: The business remains liable for the repayment of the loan.
Will I be eligible for CBILS?
To meet initial eligibility criteria small businesses must:
- Be UK based, with turnover of no more than £45 million per annum.
- Operate within an eligible industrial sector (see ineligible sectors)
- 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. We interpret this to include a) trading longer than 2 years; and b) showing a profitable financial performance during 2019.
- Loans in the scheme are limited to a maximum of 25% of 2019 turnover or double the annual wage bill, whichever is greater.
Applicants will then have to meet lenders’ normal eligibility criteria, including meeting the lender’s affordability criteria. For an indication of how much you may be able to afford to repay according to lenders’ criteria use this affordability calculator.
What are the limitations of CBILS?
Apllicants must 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. An affordability assessment will be carried out to determine whether the business could afford repayments under “normal” conditions. If a lender deems that a business cannot afford the finance, or otherwise does not meet their eligibility criteria, then they won’t provide a CBILS-backed loan.
Likely limitations will include:
- Businesses must meet the lender’s criteria: Each lender will make their own credit decisions when assessing a loan application, including an affordability assessment – the Government’s CBILS scheme won’t bypass this hurdle. We interpret this to include a) trading longer than 2 years; and b) showing a profitable financial performance during 2019.
- Getting finance won’t be quick: The scheme is being delivered by lenders, most notably the High Street banks, who can be slow. Demand is set to be exceptionally high and this is a brand new product and process, both of which is likely to make the delivery of the scheme problematic and slow. Expect loan applications to take weeks.
- Limited lender capacity: Lenders have been inundated with applications, which is why many of the key banks are only rolling this scheme out to their existing clients.
How can I access the scheme?
The scheme will be delivered through banks and lenders. There are 40 providers in all which are listed on the British Business Bank website. In practise the largest delivery partners will be the High Street banks – NatWest, Barclays, Lloyds and HSBC. Apply via lender websites or your bank relationship manager. BIZL can help businesses approach their bank, or other providers, by checking your eligibility and helping you present your application in the best possible light. Our finance specialists have extensive banking experience and can help you improve your chances of being accepted.
What are the alternatives to CBILS?
There may be many reasons why CBILS is not the right route for you. You many be ineligible, it may be too complicated for you or you may need need to access finance quicker. BIZL can help you understand your options as well as find lenders and products from across the market.
- Are there alternatives to overdrafts?
- How quickly can I get an unsecured business loan?
- Can I get a business credit card?
- British Business Bank CBILS guide
- Am I eligible for a small business loan?
- How much can I borrow?
- How much does an unsecured business loan cost?