Coronavirus Business Interruption Loan Scheme

The Chancellor had announced a second major round of financial stimulus on 20th March 2020 that included the Coronavirus Business Interruption Loan Scheme (CBILS) which commenced on 23rd March 2020. 

A new national lockdown was announced on 1st November 2020- details can be found here.

On 3rd April, after difficulties experienced by businesses in accessing CBILS support from banks, the Chancellor expanded the scheme's reach and its terms: 

On 12th April 2020, more than three weeks after it was announced, CBILS was reported (Sunday Times) as being "chaotic at best", with only about 5,000 loans being disbursed, as of 10th April 2020, despite over 300,000 inquiries being made of the accredited lenders. Blame has been attributed in equal measure to the British Business Bank, the 40 or so lenders in the scheme and to the Government.That improvements are needed to disburse much needed cash very quickly is not in doubt. 

As at 15th April, some 6,000 CBILS loans totalling £1.1bn had been made against 28,400 applications (i.e. 21% of applicants have so far got loans). Also, HMRC agreed that businesses can apply to defer import VAT. The British Business Bank added 4 new accredited lenders to CBILS, which it hoped would improve the cash-to-business ratio.

On 16th April 2020, CBILS was extended by the Government to 'viable' businesses with a turnover of more than £45m and also above £250m. This extension is expected to cover up to 3,000 extra businesses and becomes operational for applications on Monday 20th April 2020.

On 23rd April 2020, The Coronavirus Large Business Interruption Loan Scheme (CLBILS) went live. The CLBILS will enable an alternative solution for those viable larger businesses with a turnover above £45 m suffering disruptions due Covid19. Like CIBLS, the new larger scheme is accessible to businesses from banks and lenders accredited by the British Business Bank.  

As at 23rd April 2020, the Bank of England (BoE) confirmed that it had made available and/or procured a corporate loan funding pool for the banks to a total of £1.25 trillion by a number of means including: 1. £23 bn of BoE funds released in March 2020; 2. £7.5 bn in withheld bank dividends; 3. the funding to back the Government's guarantee of all CIBLS loans (as extended on 16th April 2020).

On 30th July 2020, as a result of UK Government lobbying, EU rules that were preventing businesses classed as ‘undertakings in difficulty’ were given the green light to apply for CBILS support. The relaxation of the rules relate to businesses in this category and which have fewer than 50 employees and a turnover of less than £9 million.  

For businesses that don't qualify for CIBLS, the Government launched four other support schemes:

• The High Growth Business Support Scheme
• The Small Business Bounce Back Loan Scheme
• The Coronavirus Large Business Interruption Loan Scheme (CLBILS) 
• The Covid Corporate Financing Facility (CCFF)

Details of CBILS as announced were as follows:

• CBILS applies to the following UK-based 'viable' businesses:
  • those with a turnover of up to £45m, will be eligible for CBILS loans up to £5m from accredited lenders
  • those with a turnover of between £45m and £250m, will be eligible for CIBLS loans up to £25m from accredited lenders
  • meeting the other British Business Bank eligibility criteria
• Government will guarantee 80% of each loan made under CIBLS 
• No interest will be payable on the smaller CBIL loans up to £5m for first 12 months, as interest charges will be paid by Government
• Businesses will no longer need to have tried to get loans on commercial terms from their banks before being allowed to access a CIBLS loan
• No personal guarantees are to be required by the lenders for CBILS loans up to £250,000
• For loans over £250,000, personal guarantees will have to be limited to only 20% of any amount outstanding on the CBILS lending, after any other recoveries from business assets 
• No charge can be taken over individual private residences as part of the security to be taken for any CBILS loan
• No fees to be charged by Government for providing the guarantee either to banks or customers
• There are a large number of accredited lenders under CBILS and this number has steadily increased since April 2020
• Non-eligible businesses will include those that:
  • were not profitable at the end of 2019
  • are seen to have potential debt service issues after the Covid-19 pandemic
• Any non-eligible business may, as an alternative to applying for CBILS funding support:
  • resort to normal commercial loans if they can
  • raise new equity funding from shareholders or other sources like venture capital or possible angel financing 
• The borrower of a CBIL loan always remains 100% liable for its repayment (the Government guarantee is to the banks)

For more granularity on CBILS see the British Business Banks' FAQs.

Larger businesses with a turnover of more than £250m, will be eligible for CLBILS loans up to £200m from accredited lenders. Companies borrowing more than £50 million are subject to restrictions on dividend payments, senior pay and share buy-backs during the period of the loan, including a ban on dividend payments and cash bonuses, except where they were previously agreed

CBILS Bounce Back Loans for SMEs

These are micro-loan addition to CBILS with the following features:

• available up to 25% of turnover of the business
• loans between £2 k and a maximum £50 k
• 100% guaranteed by the Government
• loan interest to be paid by the Government for the first 12 months
• no forward looking test for applicant's viability
• a simple online application procedure 
• standard fraud and anti-money laundering check to be made
• applications open at 9.00 am on Monday 4th May 2020
• loans to be disbursed within 24 hours of approval

The extension of CBILS' reach and the relaxation of its rules will come as further relief to SME owners and managers, who have experienced problems getting CIBLS loans approved and the much needed cash into their business accounts. 

For more information on eligibility see the CBIs website guidance.

Asset Purchasing with CBILS loans: It is understood that CBIL loans can only be used for working capital requirements and cannot, because of existing State Aid rules, be used to buy productive assets, such as new vehicles by road haulage companies. There is further clarity expected on this from the Government.  

Employee threshold for CBILS loans: A CBILS applicant under the original rules could have more than 250 employees, as long as its turnover is within the £45 million turnover per year limit and it is being assumed that there will be no employee limit for the expanded scheme. 

Personal Guarantees (PGs) & Loan Security: the 44 or so accredited lenders on CBILS have been told that they cannot take security in the form of personal guarantees as security for loans up to £250,000. Above that figure, it is understood that PGs may be taken and may include charges on personal residences. 

We had asked UK Finance to clarify the position on the key issues of PGs and their reply to our online question (quality is as broadcast): UK Finance Webinar- 1st April 2020

How to apply for a CBILS-backed loan facility

• There are 52 participating banks (lenders) in the scheme and it is to these the businesses are required to apply.
• The advice is for businesses to: 
  • use their usual commercial bank if it is on the accredited list, otherwise approach one in its area
  • go to the lender's own website first of all
• The types of banking facilities that can be obtained from lenders covered by CBIL include:
  • Term loans
  • Overdrafts
  • Asset finance
  • Invoice finance

Questions banks may ask on a standard CIBLs application (i.e. non Bounce Back loans)

The following is an example of the information/questions businesses may be asked to provide by a bank to process an CIBLs application (each lender will have its questions and process): 

• Full Background of the business and the level of impact the Coronavirus is having on the performance of your business. 
• The measures being taken by you to ensure there’s adequate cash flow in the business. 
• What contingencies have been put in place with suppliers etc.? 
• What is the business doing to manage expenditure? 
• What additional funding you may require and for how long?
• Term/structure required (number of months payment holiday required, is it a full holiday or reduced payments. For example, 50%, do you wish to extend the agreement by the number of payments in the holiday or spread over the remainder of the agreement?
• Other HP or lenders’ positions. Are we the only funder? If not have you approached the other funders and what has been agreed? 
• What other funding options do you have in place? i.e. overdraft options? formal HP lines?
• Please can you make available; latest year end accounts, management information, forecasts and a clear understanding of ongoing fixed costs. 
• Dependent upon the bank and your circumstances, you may be asked for more or less information to support your application. This may include: 
  • Up to 3 years of full financial statements with a detailed profit and loss account.
  • Up to 6 months of business and personal bank statements. 
  • Aged debtor and creditor lists. 
  • Complete debt structure. 
  • Statement of personal assets, liabilities, income and  expenditure. 

Questions are courtesy of Duncan & Toplis

Important Health Warning for applicants for a CBILS loan 

As we have pointed out before in our blog Coronavirus Business Support Package- Key lessons to be learned from the 2008 EFG , it is vital that all businesses thinking of applying for a CBIL-backed loan note and understand that the CBILS guarantee is to the lender and not the business. As with any other commercial transaction, the borrower is always 100% liable for repayment of the facility supported by CBILS.

Additional Information 

1. CBIL Scheme FAQs for businesses thinking of applying for a CBIL-backed loans.
2. Information for Lenders in the CBIL scheme

The Chancellor, the Governor of the Bank of England, and the CEO of the FCA wrote jointly on 25th March to the CEOs of the UK Banks on the subject of COVID-19 and bank lending, saying that the priority for "..banks, building societies, government and the financial authorities- should now be to take all action necessary to ensure that the benefits of the [Government's support measures]..are passed through to businesses and consumers."

By the publications team at: Contracts-Direct.com

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