Coronavirus business interruption loan scheme
What is CBILS?
The Coronavirus business interruption scheme (CBILS) provides financial support to SMEs across the UK that are losing revenue and seeing their cash flow disrupted as a result of the Coronavirus outbreak. The scheme is part of a wider package of government support for UK businesses and employees and is available through the British Business Bank’s list of over 40 accredited lenders – full details here.
The government is encouraging banks to lend by underwriting 80% of the value of eligible finance facilities of up to £5 million that have been provided to help otherwise viable businesses manage their cash flow through the Coronavirus downturn. This should reduce the level of risk for lenders to provide this support and therefore encourage them to provide credit for temporarily struggling businesses who would not be lent to without this scheme.
Why is it needed?
Many businesses will currently be facing short-term trading and cash flow issues as a result of projects being postponed or cancelled or simply being unable to perform due to staff shortages and office closures. Additionally, as the crisis continues, debts may take longer to be recovered. CBILS is designed to provide these businesses with the finance they need during the downturn and allow them to repay this debt once life has returned to normal and businesses have returned to profitability.
Key features
- Eligible companies can borrow up to £5 million.
- The scheme provides lenders with a government-backed partial guarantee (80%), subject to an overall cap per lender.
- Interest and fees will be paid for by the government for the first 12 months.
- Term debt and asset finance facilities can be taken over up to six years. Overdraft and invoice finance facilities will be for up to three years.
- The borrower remains 100%liable for the outstanding facility.
Key eligibility criteria include
- Be a UK-based business with annual turnover of no more than £45 million
- For businesses with turnover between £45million and £500 million, the Coronavirus Large Business Interruption Loan Scheme (CLBILS) has been announced, launching on Monday 20th The Government will guarantee 80% of loans up to £25million for businesses with turnover of between £45million and £250million and £50million for businesses with turnover of between £250million and £500 million. Loans backed by a guarantee under CLBILS will be offered at commercial rates of interest. CLBILS loans will be offered for periods of between three months and three years
- For businesses with turnover above £500 million, the Covid Corporate Financing Facilityhas been put in place.
- Be a viable business that would have been able to support a debt facility before the crisis and should return to being a viable business in the future.
- Generate 50% or more of income from selling goods or providing services.
- Operate in an eligible sector (so, not banks, building societies, insurers, reinsurers, public sector organisations, employer/professional/religious/political membership organisations or trade unions). For more detail, see British Business Bank’s website.
How much can I borrow?
The facility amount should not exceed:
- Twice the annual wage bill of the company (including social charges as well as the cost of personnel working on the undertakings site but formally on the payroll of subcontractors) for 2019, or for the last year available. In the case of undertakings created on or after 1 January 2019, the maximum loan must not exceed the estimated annual wage bill for the first two years in operation, or
- 25% of total turnover of the company in 2019, or
- The liquidity requirement of the company for 18 months
This is subject to a maximum facility amount of £5 million.
What security is required?
The security required is partly at the lender’s discretion supported by rules put in place by the Government. You may be able to borrow up to £250,000 on an unsecured basis, however this does vary from bank to bank. No personal guarantees will be taken on loans under £250,000. For loans over £250,000, security will be required in the form of a combination of a charge over assets and a personal guarantee depending on the bank For personal guarantees over £250,000, these will be limited to 20% of any amounts outstanding on the CBILS facility after any other recoveries from business assets.
When will I need to start making repayments?
The government will cover upfront fees and the first 12 months of interest. The majority of the high street banks are offering a capital repayment holiday ranging from six to 12 months at the start of the loan.
Is CBILS right for my business?
The key point of the scheme is that the borrower is 100% liable for the debt. If you cannot demonstrate that, before the crisis, your business had the cash flows available to support the repayment of debt to the level you are applying for, it is unlikely your application will be successful.
Additionally, if your business has no realistic prospect of being able to repay the loan in the future, you should not apply for this scheme. You will remain 100% liable for the debt, irrespective of the 80% government guarantee. CBILS should be considered alongside the other schemes announced to support businesses through the crisis. Further details can be found elsewhere on our Coronavirus hub.
How do I get a CBILS facility?
In the first instance, speak to the relationship manager at your bank. All the banks that we have spoken to are prioritising their own customers so it is unlikely that you will be successful through another bank at this time. Your bank does need to be registered with the British Business Bank (and most are) to apply for a CBILS facility.
Your relationship manager is likely to discuss other options available to you as well as the CBILS facility. Most banks have given an increased mandate to their relationship managers so they can approve increased overdrafts and offer capital repayment holidays without requiring approval from the bank’s credit committee, allowing businesses to access funds more quickly.
What information is likely to be required?
A typical information request list is likely to include:
- Amount – including workings of how you came to this amount
- How long it will cover your business for
- Term of the loan
- Purpose – details required
- Assets and liabilities form for each director
- Business plan with viable support
- Cash flow forecast
- List of creditors and debtors showing amounts owed and owing
- Last three years’ accounts
- Management information since the last statutory accounts date
How Moore Kingston Smith can help
At Moore Kingston Smith, we are here to support you through the crisis. Our specialist corporate finance team can help you prepare information including financial models to support loan applications which analyse multiple scenarios.
Apart from CBILS, we can also help businesses analyse which schemes are most suitable for them, such as the Coronavirus job retention scheme.
For further guidance, we’re here to help.