Covid-19 : Business Support 03.04.20 – Update 13
The Chancellor Rishi Sunak has announced this morning that he is taking further action to support firms affected by the coronavirus crisis by bolstering business interruption loans for small businesses and announcing a new scheme for larger companies.
Coronavirus Business Interruption Loan Scheme (“CBILS”) – REFORM
The temporary CBILS was launched on 23rd March with the aim of supporting SMEs obtain emergency finance to help them stay afloat during the crisis. Through the scheme the government will provide lenders with a 80% guarantee and also cover interest payments throughout the initial 12 month period. However the scheme has come under criticism due to a number of factors, including the lack of availability to businesses who are eligible for normal commercial facilities, the requirement for personal guarantees (including over promoters principal private residence), a gap in the market for larger businesses, and the requirement for business to have insufficient security to avail of the scheme. It has been reported that fewer than 1,000 loans have been drawn down despite more than 130,000 applications being received.
Today the Chancellor introduced a number of changes to the scheme which will enable more businesses to apply for the scheme. The changes include:
- The CBILS is being extended so that all viable small businesses affected by Covid-19, and not just those unable to secure regular commercial financing, will now be eligible should they need finance to keep operating during this difficult time.
- Insufficient security is no longer a condition to access the Scheme.
- The government is stopping lenders from requesting personal guarantees for loans under £250,000.
- The government is making operational changes to speed up lending approvals.
- For loans over £250,000, personal guarantees will be limited to just 20% of any amount outstanding on the CBILS lending after any other recoveries from business assets.
- Personal guarantees will not be obtained over promoter‘s principal private residence.
This expanded scheme will be available from Monday.
Coronavirus Large Business Interruption Loan Scheme (“CLBILS”) – new scheme
The Chancellor also announced that a separate scheme, the Coronavirus Large Business Interruption Loan Scheme (“CLBILS”), is being set up to provide emergency funding for larger firms impacted by the crisis which were not eligible for the CBILS, due to the £45million turnover threshold. Although the full details of the scheme have not been released, it is reported that the key features of the scheme will include:
- The scheme will be open to business with a turnover between £45 million and £500 million.
- Loans of up to £25 million will be made available.
- Similarly to the CBILS, the government will provide lenders with a guarantee of 80% to give banks the confidence to lend to more businesses which are impacted by Coronavirus but which they would not lend to without CLBILS.
- Loans backed by a guarantee under CLBILS will be offered at commercial rates of interest.
Further details of the scheme will be published later this month.
Coronavirus Business Interruption Loan Scheme (“CBILS”) – recap
Below is a recap on the key terms of the CBILS:
What is the scheme?
Under the terms of the scheme the government will:
- provide lenders with a guarantee of 80% on each loan (subject to pre-lender cap on claims) to give lenders further confidence in continuing to provide finance to SMEs; and
- provide 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.
What facilities are available?
A lender can provide up to £5 million in the form of:
- Term loans, with a term of up to 6 years
- Overdrafts, with a term of up to 3 years
- Invoice finance, with a term of up to 3 years
- Asset finance, with a term of up to 6 years
What security is required?
Security criteria includes:
- Insufficient security is no longer a condition to access the scheme.
- 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 more smaller businesses eligible to receive the Business Interruption Payment.
- No personal guarantees are required 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.
How do I apply?
Applications are processed via one of the 40 accredited lenders, and not by the British Business Bank. See list of lenders at: https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-scheme-cbils-2/current-accredited-lenders-and-partners/ . Lenders include Bank of Ireland, Ulster Bank, Santander, NatWest, Danske Bank, HSBC and Barclays.
In the first instance, businesses may wish to approach their own provider, if they are an accredited lender. They may also consider approaching other lenders if they are unable to access the finance they need. Lenders may require funding proposal, business plans or forecasts depending on the facilities required.
What businesses are eligible?
An eligibility checklist is available at https://www.british-business-bank.co.uk/wp-content/uploads/2020/03/CBILS-SME-Eligibility-Check-FINAL.pdf and includes:
- must be UK based, with turnover of no more than £45 million p.a.;
- must generate more than 50% of its turnover from trading activity
- 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; and
- operate within an eligible industrial sector (a small number of industrial sectors are not eligible for support).
How long is the scheme open for?
The scheme is open for six months.
Further information on the scheme
Further information on the scheme is available at: https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-scheme-cbils-2/
ASM’s Corporate Finance team have substantial experience in assisting businesses secure finance including approaching /negotiating with lenders and preparing funding proposals/ financial projections. We have also been continuing to assist a number of businesses navigate their way through this crisis including applying for new finance from lenders under the CBILS. Unfortunately a number of our clients have been unable to access the scheme, and today’s announcement will be welcome news for some of these businesses. Most notably, a number of businesses should now be able to access a 12 month interest free and no fee loan, despite previously being turned down for the CBILS as they met the conditions for a normal commercial loan. Furthermore, we note the Chancellors commitment to have an operational shake up of the scheme to ensure that it can be accessed quicker, this is urgently required for businesses who are facing unprecedented financial constraints.