Coronavirus Business Interruption Loan Scheme Explained

by Faareen Ali
Small to Medium sized businesses with a turnover of up to £45million

The Coronavirus Business Interruption Loan Scheme (‘CBILS’) which was announced on 23 March 2020 will enable all sized businesses to apply for loans and other forms of financing. For small and medium sized businesses, the level of finance has been capped at £5 million.  The CBILS continues to remain operational despite the recent announcement by the government to relax restrictions, and there has been an open pledge by Chancellor Rishi Sunak to provide continued support over the next few months.

Any loans acquired are 80% government backed, with nothing to pay in the first 12 months. The significance of government backing is that 80% of any bad debt will be repaid by the government, protecting lenders against the risk of non-payment and consequently enabling lower interest rates. Banks will carry out requisite checks to determine affordability of loans, suitability in accordance with business needs, and will ascertain the right type of finance in accordance with the application.

There is a two- stage test that needs to be satisfied by all applicants; firstly, that the business is viable and capable of survival were it not for the pandemic, and secondly, that it has been impacted by Coronavirus. If you are wanting to access funding for £30,000 or more, you will need to additionally illustrate that you were not in a ‘business difficulty’ on 31 December 2019. To understand what business difficulty means, please see: https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-scheme-cbils-2/cbils-faqs-for-smes/#f18.

The loaning facility can last up to 3 years for overdrafts and invoice finance facilities, and up to 6 years for loans and assets finance facilities, but businesses will need to express how long they need the finance for. The government has excepted banks, insurers, and re-insurers, public-sector bodies and state-funded primary and secondary schools from this scheme, as it is only intended to assist private businesses. 

There are over 50 lenders who have opted to take part, inclusive of main retail banks. If you are rejected for the scheme by one of the lenders, you have the liberty of going to another, all the information is available on ‘British Business Bank’. Brokers are also able to procure deals for their clients by accessing the same website.

Large businesses with turnover of over £45million

Larger businesses with a turnover in excess of £45 million are able to access up to £25 million in finance, and any with a turnover in excess of £250 million,  can receive up to £50 million.  

Businesses will need to self-certify that they have been adversely impacted by Coronavirus and provide evidence to illustrate this through cash flow forecast, historic accounts, and detail of assets etc. There is also a requirement to demonstrate that the business has not received a Bank of England’s Covid-19 Corporate Finance Facility (‘CCFF’). Through the CCFF, the Bank of England is buying short –term debt from larger companies, who have been “affected by a short-term funding squeeze, allowing businesses to fund short-term liabilities” as per Gov.uk.

Once the proposal has been presented to the lender, it will then be assessed to see whether  it would’ve been ‘viable’  were it not for Coronavirus, and whether businesses will be able to trade out of any short-term to medium-term difficulties. The exemptions to this scheme are broadly businesses and educational institutions within the public sector, as above.

Some of the key advantages of the CBILS are that businesses will not be required to pay anything for 12 months, there’s no early settlement fees, there is a quick and easy turnaround, better repayment terms and preferable interest rates. The same provisions apply for brokers being able to access the finance as an agent to the business, as well as the ability of businesses to apply more than once, if rejected in the first instance.

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