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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 Asset Finance?

An introduction to Asset Finance

Asset finance is a type of finance that gives businesses access to assets such as vehicles, equipment or technology, that they need to prosper and grow. It typically involves paying a regular fee to use the asset over an agreed period. The main advantage is that it avoids the business having to find the full cost of buying the equipment upfront and thus helps preserve working capital.

Asset finance can also be used to release the ‘cash value’ that is tied up in the assets that the business already owns. Once released, this cash can be redeployed elsewhere within the company. This type of product is often referred to as asset refinancing or sale & leaseback finance.

Like any financial product, asset finance can be a little daunting to the uninitiated, packed as it is with jargon and acronyms that seem to be designed to confuse the inexperienced. This is why, at Fusion Finance, we always strive to offer our clients clear, impartial advice and also aim to answer questions in plain simple English.

Finally, our key aim is to make sure that whichever type of asset finance product you choose is the correct one for you and your business. We also appreciate that business is always in a hurry, which means we do everything possible to offer rapid funding decisions whilst our asset finance specialists are always on-hand to answer your questions and guide you through the process.

What are the Different Types of Asset Finance?

At Fusion Finance, we offer a range of asset finance structures, some of which are briefly outlined below.

  • Hire Purchase

    This is an agreement for the hiring of an asset for an agreed term with the option to purchase the item for a fee, often known as a balloon payment, at the end of the contract. With Hire Purchase, you usually pay a larger amount up-front, typically 10% of the purchase price plus all of the VAT due on the total purchase price. You then pay the balance in instalments over an agreed timescale and at a fixed rate of interest with an option to purchase the asset at the end of the contract. The legal title to the asset will pass to the borrower once all repayments, including any balloon payment, have been made.
    Advantages include tax efficiency as the charges are an allowable expense against profits. Repayments can be flexible as you can reduce the monthly repayments by increasing the balloon payment at the end of the loan. In addition, some lenders will allow you to vary repayments to match any seasonal fluctuations in the business. Disadvantages include not being able to own the asset at the end if you cannot afford the final balloon payment.

  • Finance leasing

    A finance lease is a longer-term lease designed to operate for most of the lifetime of an asset. The borrower effectively acquires all of the financial benefits and risks from using the asset without ever owning it. At the end of the lease, there is often an option for the borrower to acquire the asset or extend the lease on a reduced ‘peppercorn’ rent.
    Advantages include low upfront cost, VAT is charged on each lease repayment and reclaimed as normal, and at the end of the lease, you will usually receive a share of any proceeds if the asset is sold.
    Disadvantages include never owning the asset and being liable for the cost of repairs and maintenance.

  • Operating leasing

    Operating leases have a shorter duration than finance leases. The length of the agreement is always significantly shorter than the working life of the asset. You cannot become the owner of the asset at any time but, contrary to financial leases, you will not share in any sale proceeds at the end of the lease. Larger assets that have significant resale values such as industrial or construction equipment, boats or aircraft are often financed using this type of lease.
    Advantages include a low, upfront cost; VAT is charged on each lease repayment and reclaimed as normal and you don’t have to worry about selling the asset when it is no longer needed.
    Disadvantages include never owning the asset and not benefiting from any sale proceeds at the end of the contract.

  • Sale & leaseback

    Sale & leaseback is slightly different from the previous three types of asset finance in that it is a method of releasing money from items that the business already owns. The money raised can then be redeployed as working capital, to cover another funding need or be used to finance additional asset purchases.
    Sale & leaseback allows you to raise funds relatively easily. The amount you can raise is limited by the type and age of the asset, and you are also restricted by the amount of equity available in the asset.

Although asset finance can be very flexible, there are some restrictions. Examples include the asset having to be critical to your business operations, and also being ‘mobile’ meaning that it can easily be removed from your business, in case of default.

Which is the best asset finance for my needs?

Deciding which is the best type of asset finance for your business really comes down to how are you going to use the asset and also your repayment preferences.

Businesses will often choose hire purchase if they want to keep the asset long term and are happy to pay a larger amount up-front. In addition, the VAT on the purchase is usually reclaimed in full in the normal way.

In contrast, leasing usually has a lower up-front cost, and the VAT element of the purchase is charged on each repayment period and claimed back over the term of the loan.

You should always consult tax, VAT or accounting specialists to determine which type of finance is best suited for your particular business circumstances.

How much can I borrow and what can I fund?

Asset finance is suitable for a wide range of asset types. It can be used to fund purchase of assets from a few thousand to several million pounds in value.

Assets that can be financed include so-called hard assets such as manufacturing equipment, agricultural machinery, yellow plant and commercial vehicles. In addition, soft assets such as IT hardware & software, lighting and catering equipment can also be financed, and the loan facility can also cover the installation of the asset, support, maintenance and training.

Borrowers need to be solvent and have a credit profile that is acceptable to the chosen lender. If there are historical credit issues, then these will be dealt with on a case by case basis. Lenders should always be made aware of any potential credit issues from the beginning of the loan application as nothing will sour a deal quicker than a lender thinking facts are being hidden from them.

Some lenders will also allow for ‘soft starts’ where the initial repayments are lower until the asset starts earning money for the borrower. Some will even allow for ‘repayment holidays’ which help with cashflow during quieter periods when the equipment may not be earning money for the borrower.

How much interest can I expect to pay?

The rate offered to a borrower depends on several factors including which lender is selected, the type of asset being financed and the financial health of the borrower. The best rates are usually reserved for strong assets, that offer security and have a strong long term residual value. However, we always strive to obtain the most competitive asset finance deals for our clients.

Will a lender support me?

There are several high street banks who will still offer asset finance. In addition to these, we also have around 20 other leasing companies which include merchant banks, challenger banks and specialist lenders all keen to lend to the right businesses.

What paperwork will I need?

When approaching a lender, a borrower will need to provide a range of information including but not limited to the following:

  • The type of asset being purchased including make, model and serial number.
  • If it is pre-used then its age, condition and hours used will be required.
  • For vehicles the registration number, chassis /VIN and mileage.
  • Supplier name and address including bank account details
  • Quotation for overall cost of the asset(s) including delivery and any details of part exchange or deposits
  • Last two years of company accounts
  • Last three months bank statements
  • Photo ID

Finally

There are many asset finance products available, and they can be taken out on almost any asset valued from a few thousand pounds to several million. Our access to the wider market means that we can often secure you better terms, whilst always ensuring that you fully understand exactly what you are committing yourself to.

So whether you’re thinking of unlocking the value in items, you already own or purchasing equipment for your future business needs Fusion Finance can provide you with a fast, competitive quote on any capital equipment necessary for your business.

If you require any additional information or are ready to move ahead with an asset finance project, then please get in touch. Our advice is offered freely, in confidence and without obligation.

So if you require any additional information or are ready to move ahead with a development project, then please get in touch.

 

© 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.