Coronavirus Business Interruption Loan Scheme (CLBILS)
Businesses affected by the current pandemic may be eligible to access finance of up to £5 million
Coronavirus Business Interruption Loan Scheme
Key features of the scheme
Businesses are able to access finance of up to £5 million. This includes sole traders, freelancers, body corporates, limited partnerships and limited liability partnerships.
Businesses apply to the scheme through one of the accredited lenders (note that this does not have to be their usual funder, although it is likely to be quicker to deal with a funder that already knows the business).
The government pays the interest and fees for 12 months (but note this is not rolled up – the government pays the interest for that year). The scheme is available on repayment terms of up to six years (duration depends on the type of finance required).
The scheme provides the lender with a government-backed, partial guarantee against 80% of the outstanding balance of the finance. The borrower remains 100% liable for the debt.
Who is eligible?
- be UK-based in its business activity;
- have an annual turnover of no more than £45 million;
- have a borrowing proposal which the lender would consider viable, were it not for the current pandemic; and
- self-certify that it has been adversely impacted by the coronavirus outbreak (“COVID-19”).
If the business is part of a group, controlled on either a legal or de facto basis, the maximum turnover applies to the group undertaking. More than one company within the group can be considered for a CBILS facility but only if the consolidated group turnover does not exceed the £45 million annual turnover threshold. The qualifying period is 12 months preceding application.
For term loans and asset finance facilities: up to six years.
For overdrafts and invoice finance facilities: up to three years.
Insufficient security is no longer a condition to access the scheme (some businesses were initially turned away from CBILS as they had enough security to obtain a commercial business loan through the usual pre-COVID route).
For all facilities, including those over £250,000, CBILS can now support lending to smaller businesses even where a lender considers there to be sufficient security, making smaller businesses eligible to receive the business interruption payment.
There is no requirement for 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.
A worked example to show what this means in practice based on a £1,000,000 facility:
- Business pays off £400k, then defaults, owing £600k
- Lender recovers £100k from other business assets secured, such as a debenture (e.g. stock), leaving £500k outstanding
- Call on Personal Guarantee is £100k (20% – not the full £500k as previously), leaving £400k as a loss
- Government covers £320k, Lender loses £80k
Information required by the lenders
- the amount the businesses would like to borrow;
- what the money is for — the lender will check that it’s a suitable business purpose and the right type of finance for the business needs;
- repayment profile; and
- the Lender is likely to still require sight of some of Management accounts, Cash flow forecast, Business plan.
Requirements will vary from lender to lender.
For many customers approaching their existing lenders for a smaller facility, the process may be automated and therefore may not require the same level of documentation.
What to do if original lender has turned a business down?
If one lender turns a business down, they can still approach other lenders within the scheme.
Access to the scheme has now been opened up to smaller businesses facing cashflow difficulties who previously would not have been eligible for CBILS because they met the requirements for a standard commercial facility.
Businesses should therefore consider re-contacting their lender if they have previously been unsuccessful in securing funding. However, it should be noted that the scheme is only open for six months until end of September 2020.
Similarly, if a business has entered into mainstream facilities that would have been eligible for CBILS, since the scheme launched, their funder will be obliged to re-book them as a CBILS facility. Businesses should contact their funder to discuss this.
CBILS isn’t available to businesses borrowing £30,000 or more if the business was an ‘undertaking in difficulty’ as of 31 December 2019. ’Undertaking in difficulty’ is defined in Article 2 (18) of the Commission Regulation (EU) no. 651/2014 of 17 June 2014.
When businesses apply, they will be asked to confirm that the business was not an undertaking in difficulty as of 31 December 2019. Unless a business is less than three years old or, within seven years from its first commercial sale, if a business has accumulated losses greater than half of its subscribed share capital as at 31 December 2019, it will not be eligible for CBILS. In practice this means that certain fast growth businesses may not be eligible for CBILS.
Interest rates in respect of borrowing facilities are individually negotiated and the amount businesses are charged will depend on their circumstances.
These must be reasonable and based on equivalent lending outside of CBILS. This must also take into account the existence of a guarantee from the UK government and pass the economic benefit of the existence of this guarantee to the borrower through lower pricing than it may otherwise have had without the benefit of the guarantee.
For early-stage businesses in their first two years of trading, the British Business Bank’s Start Up Loans programme (loans from £500 to £25,000 at interest of 6% per annum) may be more suitable.
Visit www.startuploans.co.uk for more information.
The basic terms of this are that the borrower can borrow up to £25,000 (average loan amount is £7,200). There is a fixed interest rate of 6% per annum and repayment terms are typically one to five years loan term. There are no set up or early repayment fees.
Coronavirus Large Business Interruption Scheme
Note that this scheme is not available yet. We expect it to launch before the end of April 2020.
CBILS will support large businesses, with an annual turnover of between £45 million and £500 million.
To be eligible businesses will need to be:
- based in the UK;
- have an annual turnover of between £45 million and £500 million; and
- unable to secure regular commercial financing.
Further clarity on the third limb is clearly vital. There must be a borrowing proposal which the lender:
- would consider viable, if not for the coronavirus pandemic; and
- believes will enable the business to trade out of any short-term to medium-term difficulty.
However, there are exceptions and the following businesses are not eligible to apply:
- banks, insurers and reinsurers (but not insurance brokers);
- public-sector bodies;
- further-education establishments, if they are grant-funded;
- state-funded primary and secondary schools.
Further detail on eligibility will be confirmed later this month.
The loans will be up to £25 million.
The scheme will …allow lenders to support businesses that were viable before the coronavirus outbreak but now face significant cash flow difficulties that would otherwise make their business unviable in the short term.
Facilities backed by a guarantee under CLBILS will be offered at commercial rates of interest.
The scheme will launch later this month. We anticipate it will be available through a range of accredited lenders.