Coronavirus Business Interruption Loan Scheme (CBILS) Update

At the Budget 2020, the Chancellor announced that a ‘Coronavirus Business Interruption Loan Scheme’ (CBILS) would temporarily replace the Enterprise Finance Guarantee (EFG).  It will operate in a similar way to EFG and is provided by the British Business Bank, but it is intended offer more attractive terms for both businesses and lenders, to support the continued provision of finance to UK businesses during the Covid-19 outbreak.

It's fair to say that the scheme has had a slow start and received some bad press over the past few weeks.  The Times commented yesterday that the Government had struggled to get funds to flow to the parts of the economy where they are needed and believes that, whilst 300,000 companies are thought to have enquired, only 2% have been successful so far.  Elsewhere, however, industry experts have noticed this week that things are beginning to move, albeit slowly.  Here is what we have learned:

  • Four new lenders were added on Saturday to the bank of 40+ of existing lenders and of those, two new lenders are happy to consider lending to non-customers – Starling Bank and The Cooperative Bank.  Three more lenders are expected to join next week.
  • The number of approvals stands at over 6,000 now which indicates a significant jump in the past two weeks with lenders finally beginning to process applications but they are still struggling with application demand.
  • There was a lot of talk about personal guarantees at the start of CBILS – the Chancellor, Rishi Sunak, has now banned personal guarantees for loan amounts up to £250k.  For loans over £250k, only 20% of the loan can be covered by a personal guarantee.
  • What sorts of interest rates are being seen?  The Chancellor says that lenders have to offer  “favourable market rates” and we are seeing rates of 3.5%-5% for banks (the lowest rate we’ve heard of is 2.5%) and interest rates of between 5% and 12% for “non-bank lenders” (i.e. those previously in the Enterprise Finance Guarantee Scheme).
  • The UK government will cover loan interest in first 12 months (with the interest being paid direct to the lender) and the loans are government backed up to 80%. Capital repayment holidays for first 12 months are often also available
  • Loans are generally offered for period of 6 years but the banks are also starting to offer lump sum capital repayments, following criticism.
  • Further measures were announced last night by the Chancellor for large businesses with turnover of more than £45m https://www.gov.uk/government/news/chancellor-expands-loan-scheme-for-large-businesses

 
So what do we know about the CBILS pre-application process?  Here are a few practical considerations and tips that we’ve picked up this week:
 
It may seem obvious, but you have to be a profitable or viable business and each bank has their own idea about what that means.  If you have cash reserves it might make you ineligible for CBILS as the banks are not giving out willingly as they remain on the hook for a proportion of any losses so  vetting continues to be prudent.  We understand that a rejected application won’t go down as a credit decline so our advice is to submit an application, have a go. For the nine major banks, the definitions of viability are more flexible than they were two weeks ago.

The priority for the grant of  loans is for trading businesses (as opposed to investment property holding companies, public services companies, financial services companies and some other excluded sectors).

Bank reconciliations must be up to date to 31 March 2020 – some lenders or funding search engines will ask for direct access into your bookkeeping software.

Minimum requirements for financial information are generally:

  • Year end 2018 and year end 2019 profit and loss and balance sheet
  • A cash flow forecast which assumes steps to recovery from July 2020 onwards – a two year forecast is generally recommended for the applications.  If you are using any of the main cloud bookkeeping applications (such as Xero, QuickBooks or FreeAgent) then, for efficiency, you may want to look at preparing your cashflow with one of the forecasting apps which integrate with your bookkeeping.

Before applying, you may be asked to demonstrate that you have you considered all the other available measures under Covid19:

  • VAT deferment
  • Time To Pay (TTP)
  • The Coronavirus Job Retention Scheme (CJRS)
  • Rates relief (specific sectors only) and grants (specific sectors only),
  • and have you looked at other cost cutting possibilities, such as getting payment holidays from HP companies etc

Many banks are using basic eligibility checkers/tools for top line information so you can start by providing a small amount of information and build up.

You can reapply with other lenders even if you get turned down and you can definitely try a bank which is not your usual bank.

One or two banks will offer loans of below £25k. 

The situation is changing daily.  For the latest information visit https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-scheme-cbils-2/current-accredited-lenders-and-partners/ or please call your usual Bennett Brooks contact.