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CBILS – Your Questions Answered

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:

    1.  Is your loan application for business use only?
    2.  Are you a U.K. based business with an annual turnover of less than £45 million?
    3.  Does your business generate over 50% of its turnover from trading activities?
    4.  Will your CBILS-backed facility be used mainly to support trading in the U.K.?
    5.  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.

© 2020 Fusion Finance.


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Please feel free to share our details with any of your friends, colleagues or connections who may be looking for funding support.

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What is a Revolving Credit Facility?

So what is a revolving credit facility? Until quite recently, most businesses would turn to their high street bank for an overdraft to finance their day to day working capital needs. Nowadays, such facilities are becoming increasingly rare; however, there is a more modern and flexible alternative called a revolving credit facility.

A revolving credit facility is a pre-approved funding arrangement between a lender and a business. It provides working capital that can be used to ease any short-term cashflow pressures that the company may have. The facility will have an agreed limit, and it can be drawn down, repaid and drawn down again as and when needed.

How do revolving credit facilities work?

Revolving credit facilities typically last between six months and two years although providers will usually offer to renew a well-run facility before it ends.

Revolving credit facilities usually have higher interest rates than traditional business loans. However, if used correctly, they can work out more cost-effective because you only pay interest on the amount of money that has been drawn down at any one time. Compare this to a traditional business loan where interest is paid on the full amount of the facility all of the time.

Revolving credit facilities are also well suited to newer businesses. This suitability is because the size of the facility offered is more dependent more on the amount of available cash flow passing through the accounts each month rather than the length of the trading history.

How big a revolving credit facility could my business get?

The size of the facility that can be raised will depend on several factors. These include turnover, profitability and also the credit history of both yourself and your company. Any security that is given by the borrower will also affect the size of the facility. Although for revolving credit, security is usually in the form of a personal guarantee rather than specific assets.

Many lenders offer facilities that are equivalent to one month’s turnover. However, if you manage the facility wisely, then many lenders will increase the available funding as your business expands. That way, the facility grows as your company grows.

Would my business be eligible for revolving credit?

Revolving credit facilities are available to companies, partnerships or even sole traders. They are also much easier to put in place than other types of business funding. As long as your business is profitable and has been trading for at least three months, then you should be well placed for some level of revolving credit. However, any lender will always want to assess your business thoroughly before they commit to a credit facility.

Key benefits of revolving credit facilities

  • Speed – revolving credit facilities can often be set up very quickly because the information required by the lender is usually simple and straightforward. Some lenders are now also using accounts software integration along with open banking to streamline and speed up the application process.
  • Flexibility – one of the main advantages of revolving credit facilities is that the money is always there when you need it. However, the facility will only cost you money, in the form of interest, when you use it. This cash availability is particularly useful for companies that need to borrow small amounts regularly but can then repay it quickly when they get paid. It also means that if trading opportunities or unexpected bills crop up, you always have the funds available to deal with them there and then rather than chasing around trying to raise money after the event.
  • Simplicity – revolving credit facilities are simple to set up as they do not typically involve any asset valuations or security other than a personal guarantee in some circumstances.

Finally

Being quick, flexible and straightforward to set up means that revolving credit facilities have become very popular with many small business owners.

Revolving credit facilities work best for regular cashflow shortfalls that only last up to a couple of weeks and are then quickly repaid. They are not designed to be used to fund longer-term debt.

So if you require any more information or are ready to move ahead with a revolving credit or another form of working capital funding, then please get in touch. Our advice is offered freely, in confidence and without obligation.

© 2019 Fusion Finance.


We grow our business through referrals and recommendations.
Please feel free to share our details with any of your friends, colleagues or connections who may be looking for funding support.