Coronavirus Business Interruption Loan Scheme (CBILS)
The temporary CBILS, provided by the British Business Bank (BBB) through participating lenders, aims to support SMEs (those with an annual turnover of £45m) with access to loans, overdrafts, invoice finance and asset finance of up to £5 million for up to 6 years. (For overdrafts and invoice finance facilities, terms will be up to three years). These loans are interest and charges free for the first 12 months whereby there will be no upfront costs and lower initial repayments. In Northern Ireland, participating lenders including Bank of Ireland, Barclay’s, Danske, HSBC, Santander and Ulster Bank. The BBB explains “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’. NB – the borrower always remains 100% liable for the debt.”
The government will provide lenders with a guarantee of 80% on each loan and important changes were announced to the scheme on 3 April to make it available to those smaller businesses who would previously have met the requirements for a commercial facility and thus would not have been eligible for CBILS. These changes include:
No personal guarantees (PG) for facilities under £250k.
For loans above £250k lenders may require personal guarantees but 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. Note that a Principal Private Residence (PPR) cannot be taken as security to support a PG or as security for a CBIL backed facility.
For all facilities, including those over £250,000, CBILS can now support lending to smaller businesses even where a lender considers there to be enough security, making more smaller businesses eligible to receive the business interruption payment.
The BBB states the changes announced on 3 April should be retrospectively applied by lenders for any CBILS facilities offered since 23 March 2020.
For any non-CBILS facilities offered since the same date, providing the borrower meets the CBILS eligibility criteria, lenders have been asked to bring these facilities onto CBILS wherever possible and changes retrospectively applied as necessary. So, in simple terms, CBILS should take precedence over banks normal lending products.
The BBB states the CBILS “will offer more attractive terms for both businesses applying for new facilities and lenders, with the aim of supporting the continued provision of finance to UK businesses during the Covid-19 outbreak”. Let’s hope it does and that it fully reflects the new Bank of England base rate of just 0.1%. However, we fear interest rates will not be as low as many would hope as lenders have to pay the BBB a fee to access the scheme and doubtless that fee will be passed on to borrowers. In our view the scheme would be improved further if there was a cap on the interest rate that could be charged.
Note that the normal requirements for securing finance – such as the presentation of a business plan and both historical and future cash flows – apply. And, the scheme is only relevant to businesses that are fundamentally sustainable. The BBB make this clear when it states that an eligible business must “have a borrowing proposal which, were it not for the current pandemic, would be considered viable by the lender”.
The changes announced on 3 April mean, in effect, that CBILS should take precedence over banks normal lending products. Thus, its perhaps unsurprising that many banks now participate in the scheme.
The Bounce Back Loan Scheme (BBLS)
This recently announced scheme is designed to provide low level financial support to businesses that have seen their revenue/cashflow adversely affected by Covid-19.
The scheme allows businesses to apply for a loan from £2,000 up to 25% of their turnover from their accredited bank. The maximum loan amount under this scheme is £50,000.
Unlike CBILS the government has dictated the interest rate that is to be charged by the lender under this scheme and the term length of the loans. The interest is fixed at 2.5% and the length of the loan is 6 years. The government will make a Business Interruption Payment (BIP) to cover the first 12 months interest payments. The borrower does not have to make any repayments for the first 12 months.
Also, unlike CBILS, lenders are not permitted to take personal guarantees or to take action over a borrower’s personal assets (e.g. their home or car)
This scheme offers the lender a 100% government backed guarantee against the outstanding balance (both interest and capital). This has greatly reduced the amount of financial due diligence required by the lender which has in turn simplified the application process for this loan significantly.
It is important to note that despite the above guarantee the borrower always remain fully liable for the debt.
This scheme is only eligible to borrowers that:
Have been affected by the pandemic,
Were not a business in difficulty at 31 December,
Are engaged in a trading/commercial activity in the UK and was established pre-1st March 2020,
Derive more than 50% of its turnover from their trading activity
Are not using CBILS, CLBILS or CCFF (unless the bounce back loan will refinance the whole facility),
Are not a credit institution, insurance company, public sector organisation or a state-funded school.
To apply for a BBLS loan borrowers should apply directly with their bank, ideally through their website.
The application for these loans and turnaround time between applying and receiving the money is a lot quicker than the previous loan schemes announced. We have seen examples of companies completing the application and being approved within an hour. Once approved borrowers can expect to see the loan credited to their account within a matter of days.
Like with CBILS only accredited lenders can offer BBLS loans. The list of accredited banks is being continually updated. As of 6th May the NI banks that have received accreditation are Dankse Bank and Ulster Bank.
The list of accredited lenders can be found on the following link:
If you bank with another bank, we would recommend contacting your account manager and ask them directly if the bank has sought to become an accredited BBLS lender.
Coronavirus Large Business Interruption Loan Scheme (CLBILS)
This new scheme was announced on 3 April and extends the CBILS to UK-based firms with an annual turnover of between £45 million and £500 million. The maximum size of the loan has been increased for such businesses to £25m. The scheme will launch later in April and will support a wide range of businesses to access finance products including short term loans, overdrafts, invoice finance and asset finance.
The government will provide lenders with an 80% guarantee on individual loans for businesses that were viable before the COVID-19 outbreak but now face significant cash flow difficulties. Businesses would remain responsible for repaying any facility they may takeout. Lenders will still be expected to conduct their usual credit risk checks and borrowers will need to be able to demonstrate to the lender that the Company is:
viable, were it not for the COVID-19 pandemic
able to trade out of any short-term to medium-term difficulty
Covid Corporate Financing Facility (CCFF) – larger firms only
The CCFF will provide funding to businesses by purchasing commercial paper of up to one-year maturity, issued by firms making a material contribution to the UK economy. It will help businesses across a range of sectors to pay wages and suppliers, even while experiencing severe disruption to cashflows.
The facility will offer financing on terms comparable to those prevailing in markets in the period before the Covid-19 economic shock and will be open to firms that can demonstrate they were in sound financial health prior to the shock. The facility will look through temporary impacts on firms’ balance sheets and cash flows by basing eligibility on firms’ credit ratings prior to the Covid-19 shock. Businesses do not need to have previously issued commercial paper in order to participate. The scheme will operate for at least 12 months and for as long as steps are needed to relieve cash flow pressures on firms that make a material contribution to the UK economy.