Government support-Covid 19- Business Interruption Loan Scheme (CBILS)

The government established the Coronavirus Business Interruption Loan Scheme (CBILS) to support SMEs with access to loans, overdrafts, invoice finance and asset finance of up to £5 million and for up to 6 years.

The government support covers the first 12 months of interest payments and any lender-levied fees. The borrower remains fully liable for the debt however the government guarantees repayment to the lender of 80% on each loan through the government-owned British Business Bank in the event the borrower fails to repay the loan.

The scheme went live on 23 March and will initially run for six months. The scheme conditions were expanded from 6 April 2020 to remove personal guarantees for loans below £250,000 and to require lenders to evaluate businesses on their ability to meet commercial facility requirements but for the impact of Covid-19.

There are 40+ accredited lenders able to offer the scheme, including all the major banks, challenger banks, asset based lenders and specialist local lenders. Details of the accredited lenders are available here

Set out below are those details of CBILS which have been announced to date and incorporate answers to queries we have received from clients including:

• What are the eligibility criteria?
• How much can I borrow?
• What are the repayment terms?
• How will lenders assess borrowers?
• What lending security will be required?
• How do I apply?
• What supporting documents will need to be submitted?

There may be further changes to the CBILS support and to the accredited lenders procedures. Further information will be included on our website as it becomes available and is also available via these links to the British Business Bank and GOV.UK

What are the eligibility criteria?

All forms of business entity which meet the criteria can make an application under CBILS including:

• sole traders
• freelancers
• bodies corporate
• limited partnerships
• limited liability partnerships, and
• any other legal entity carrying out business activity in the UK

Businesses must meet all of the following criteria are eligible to apply for CBILS through an accredited lender:

• Are UK-based and operate in the UK
• Have a group annual turnover of up to £45 million in the twelve months prior to application
• Generate more than 50% of turnover from trading activity
• Have a borrowing proposal that, if not for coronavirus, would be considered viable by the lender
• Must not be an “undertaking in difficulty”

Certain businesses are not eligible to apply for CBILS:

• banks, insurers and reinsurers (but not insurance brokers)
• public-sector bodies
• further-education establishments, if they are grant-funded
• state-funded primary and secondary schools

An “undertaking in difficulty” is defined by EU Commission Regulations and includes:

• If a company or partnership incorporated more than three years ago, has accumulated losses of more than half of its share capital
• Any business which is subject to insolvency proceedings or may be placed in insolvency at the request of its creditors

Lenders will need further information to confirm eligibility and will also have their own criteria to determine if the loan is to enable trading during short-to-medium term difficulty and the business can afford to repay the loan during the loan term (of up to six years see below – what are repayment terms?).

Loss making businesses can apply under CBILS provided they meet the above criteria. For early-stage businesses in their first two years of trading, the British Business Bank’s Start Up Loans programme (loans from £500 to £25,000 at interest of 6% per annum) may be more suitable.

How much can I borrow?

There is no minimum borrowing requirement under CBILS however a number of lenders are setting lower limits for facilities under the scheme and some are differentiating between incorporated entities, including limited liability companies and limited liability partnerships, and sole traders and partnerships.

The maximum borrowing for SMEs under CBILS is £5 million and borrowing can be by way of loans, overdrafts, invoice finance and asset finance.

Not every lender will be able to provide every type of borrowing facility. Where lenders are able to provide more than one type of facility a mix of facilities may be available.

What are the repayment terms?

CBILS facilities repayment terms including period of repayment, repayment amounts and period of the facility will be agreed with the lender in each instance subject to the maximum facility terms.

Under CBILS the government will meet the costs of the lender’s fees and the interest for the first twelve months of the facility.

The borrower will be responsible for interest payments after this initial twelve month period and may also be subject to lenders fees for variations in the facility such as, for example, early repayment.

The maximum facility periods depend on the type of borrowing facility as follows:

• For term loans and asset finance on repayment terms the maximum loan period is five years
• For overdrafts and invoice finance facilities the maximum facility period is three years

CBILS facilities are available from some lenders which include an initial twelve month capital repayment holiday.

How will lenders assess borrowers?

Each lender will assess the CBILS applications according to their own lending criteria.

Under CBILS the business needs to show ability to meet the affordability of lending criteria by reference to the financial position and performance of the business prior to the impact of coronavirus on the business.

Some lenders set restrictions on the purpose to which CBILS facilities can be applied such as meeting short term working capital requirements or developing the business. It may be expected such restrictions will preclude using CBILS to retire other lending facilities or to make distributions to shareholders.

Lenders may also require businesses to use some or all of their current liquid assets before accepting an application under CBILS.

What lending security will be required?

Subject to the constraints set out below the lending security is at the discretion of the lender however the lack of sufficient security does not preclude making a CBILS application.

Lenders are not permitted to take personal guarantees of any form for facilities below £250,000.

For facilities above £250,000, personal guarantees may still be required, at a lender’s discretion, but:

• the Principal Private Residence (PPR) of the borrower or the guarantor cannot be taken as security to support any personal guarantee; and
• recoveries under any personal guarantee are capped at a maximum of 20% of the outstanding balance of the CBILS facility after the proceeds of business assets have been applied

Application can be made under CBILS even where the lender is satisfied it can obtain sufficient security from the borrower. It is likely in such circumstances the lender will take the security available in support of the CBILS facility.

How do I apply?

Businesses can approach any of the 40+ accredited lenders to make an application but should consider approaching their current finance providers in the first instance.

Businesses can approach other accredited lenders if they choose or if are not accepted for CBILS by their current finance providers or if they require finance facilities which their current finance provider is unable to provide.

Lenders are encouraging applications to be submitted via the lenders website as the most effective way of progressing an application.

What supporting documents will need to be submitted?

The requirements will vary from lender to lender and further details of the information needed should be available from the accredited lenders website.

The likely supporting documents required will be to evidence the ability of the business repay the facility. For larger facilities, this may be expected to include:

• Management accounts
• Cash flow forecast
• Business plan
• Historic accounts
• Details of business assets

A CBILS application may still be an option even if all the above information is not available particularly for borrowers approaching their existing lender and for borrowers seeking a smaller facility.