The new Coronavirus Business Interruption Loan Scheme (CBILS) is now available to borrowers through participating banks and other specialist lenders. This brief article pulls together the key requirements of the new scheme and also outlines what is needed to obtain the funding.
What is CBILS?
CBILS is a new government scheme that can provide facilities from £50k up to £5m for smaller U.K. based businesses. It is aimed at firms that are losing revenue, and seeing their cash-flow disrupted, as a result of the COVID-19 outbreak. CBILS can support a wide range of business finance products, including term loans, overdrafts, invoice finance and asset finance facilities.
The British Business Bank operates CBILS and has a list of over 40 accredited lenders. The scheme gives the participating lenders a government-backed guarantee of up to 80% of any loan they issue under the scheme. And this guarantee can mean that a ‘NO’ credit decision from a lender becomes a ‘YES’.
Who will provide the loans?
CBILS loans are available from a list of over 40 accredited lenders. These providers include all the high street banks and many smaller specialist lenders. Over the coming weeks, it is expected that many more lenders will join the scheme.
How much can I borrow?
Currently, the maximum loan size is £5 million. However, each bank will have its own minimum and maximum lending criteria while not exceeding the £5 million limit. All lenders must still only provide loans that are suitable for the needs of the business and affordable to the borrower.
Furthermore, the borrowed amount cannot exceed the lower of the following three measures:
- 25% of the borrower’s turnover in 2019.
- 2 x the borrower’s annual wage bill.
- The liquidity needed for a maximum of 18 months but can include asset purchases.
What will a CBILS loan cost?
The interest rate charged on the loan will be the same as the lenders normal market rate and will vary on a case by case basis.
Unlike the previous government-backed EFGS facility, the government will not charge any interest surcharge for its guaranteed portion of the loan.
The government will make a Business Interruption Payment to cover the first 12 months of interest payments. It will also cover all of the up-front arrangement fees that the lender may charge. Some lenders may also offer 12 month capital repayment holidays, but that is yet to be confirmed.
What loan terms are available?
Terms of up to six years are available for loans and asset finance facilities. For overdrafts and invoice finance facilities, the terms will be up to three years.
Will I need security to get a CBILS loan?
For loans, up to £250,000 – lenders will not require personal guarantees of any form.
For loans, over £250,000 – personal guarantees may still be required, at a lender’s discretion, but:
- guarantees exclude the borrow’s 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
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. This helps make more smaller businesses eligible to receive the Business Interruption Payment. Where there is sufficient security available, it is likely that the lender will use that security to support a CBILS facility.
However, a borrower cannot use their primary residential property as security under the scheme.
What is the borrower’s liability?
Although the government guarantees the loan, the guarantee is to the lender. The borrower always remains 100% liable for the whole outstanding debt.
Will my business be eligible for CBILS?
With a few exceptions, smaller businesses from all sectors can apply for up to £5 million under CBILS.
To be eligible to apply for a CBILS-backed facility, prospective borrowers will need to answer YES to the following five questions:
- Is your loan application for business use only?
- Are you a U.K. based business with an annual turnover of less than £45 million?
- Does your business generate over 50% of its turnover from trading activities?
- Will your CBILS-backed facility be used mainly to support trading in the U.K.?
- Are you looking to borrow no more than £5 million?
If you answer yes to all five, then you have jumped the first hurdle.
Are sole traders or freelancers eligible?
Yes, they are as long as the business operates through a business bank account. The scheme is open to most sole traders, freelancers, limited companies, limited partnerships, limited liability partnerships or other legal entities carrying out a business activity in the U.K.
Do I need to evidence that my business is viable?
Yes, CBILS seeks to support borrowing proposals which, were it not for the current pandemic, would be considered commercially viable by the lender. The lender must also believe that the provision of finance will enable your business to trade out of any short-to-medium term difficulties.
I am getting other state aid to help respond to COVID-19, can I still get a loan?
Yes, you can. The eligibility criteria for CBILS are not affected by other forms of government support that a firm may receive.
When can I apply for a CBILS supported loan?
The scheme went live on Monday 23rd March 2020, and it is planned to run for at least six months.
Can I still borrow money from non-CBILS lenders?
Yes, the majority of the lenders we use are still open for business. Although lending criteria have changed there is still an appetite for funding investment properties, bridging, invoice finance and asset finance. Please get in touch to discuss your options.
Should I apply now before funds run out?
The government will fully fund the scheme for the next six months. However, demand for CBILS is expected to be strong, and the process is bound to be slower and more involved than would be ideal. It may, therefore, be wise for businesses to apply as early as possible to ensure a quicker decision.
What should I do next?
The new CBILS facility has many positive features. It may prove to be a financial lifeline for many businesses in these difficult times. Companies can apply to any of the CBILS lenders directly. Alternatively, they can use a commercial finance broker who will determine which is the most appropriate lender and submit the application on behalf of their business.
Fusion Finance and our network partners are working very closely with all of the banks and funders involved in CBILS. We have been in regular contact with them to understand how the scheme will work in practice. Our team are on hand to provide support to all our clients. If you choose to use our services, we will direct your application quickly and efficiently to the most appropriate CBILS lender.
So if you are considering CBILS funding, then please get in touch. Our advice is offered freely, in confidence and without obligation.
Please note: the information contained in this article is correct as of 30th March 2020. However, the terms and conditions of the CBILS are subject to change without prior notification.
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