Due to the coronavirus pandemic, the government has put together an unprecedented financial package in order to keep the economy functioning. A key element of this support is the Coronavirus Business Interruption Loan Scheme (“CBILS”), announced by The Chancellor at Budget 2020, that can provide facilities of up to £5m for smaller businesses across the UK who are experiencing lost or deferred revenues and a sharp fall in profitability, leading to disruptions to their cashflow.
The scheme provides the lender with a government-backed, partial guarantee (80%) against the outstanding facility balance, subject to an overall cap per lender, potentially enabling a ‘no’ credit decision from a lender to become a ‘yes’.
Key Features
The key features are as follows:
- Can provide a wide range of business finance products, including term loans, overdrafts, invoice finance and asset finance;
- Funding of up to £5m can be available under the scheme;
- Finance terms are up to six years for term loans and asset finance facilities. For overdrafts and invoice finance facilities, terms will be up to three years;
- The scheme provides the lender with a government-backed, partial guarantee (80%) against the outstanding facility balance, subject to an overall cap per lender;
- The Government will make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied fees, so businesses will benefit from no upfront costs and lower initial repayments;
- At the discretion of the lender, the scheme may be used for unsecured lending for facilities of £250,000 and under. For facilities above £250,000, the lender must establish a lack or absence of security prior to businesses using CBILS. If the lender can offer finance on normal commercial terms without the need to make use of the scheme, they will do so;
- CBILS will run for 6 months and has no limit as to how much funding is available, it will be demand-led;
- This can be applied for alongside other forms of government support that SMEs may be benefiting from e.g. business rate reliefs or grants unrelated to the CBIL scheme; and
- The borrower always remains 100% liable for the debt.
All the above features will apply irrespective of lender. However, we expect different lenders to take “house” views on financing structures (up to 12 month repayment holidays) and the requirements for personal guarantees or debentures.
Eligibility
You are eligible for the scheme if:
- your application is for business purposes;
- your business is UK based, with turnover of no more than £45m per year;
- your business generates more than 50% of its turnover from trading activity;
- your CBILS-backed facility will be used to support primarily trading in the UK;
- you wish to borrow up to a maximum of £5m; and
- you have a borrowing proposition which would have been viable pre-Coronavirus
Smaller businesses from any sector can apply for the full amount of the facility, excluding the following: Banks, Building Societies, Insurers and Reinsurers (but not insurance brokers), Public Sector organisations including state funded primary and secondary schools; and Membership Organisations (employer, professional, religious or political) and Trade Unions.
Lenders
Decision-making on whether you are eligible for CBILS is fully delegated to the 40+ accredited CBILS lenders. These lenders include Barclays, Bank of Scotland, Bank of Ireland, HSBC, Lloyds, Natwest, Metro, RBS, Santander and Yorkshire Bank. The full list is noted on the website below:
Lenders are still applying to be on this scheme, so the list is likely to get longer in the coming days and weeks.
Practical Advice
We anticipate that the first wave of the CBILS will involve many lenders focusing on supporting their existing clients as opposed to looking at new to bank opportunities. This may change in 4-6 weeks with a second wave. So, in the first instance we recommend that you talk to your existing funders about any funding requirements.
We recommend that you consider the CBILS scheme as you would any other funding request i.e. don’t assume it will be a short cut or easy route to finance. Details of the scheme are still emerging, but one thing is clear – these are loans rather than handouts and unstructured and ill prepared approaches will not be successful.
How the bank will assess credit risk when there is such uncertainty is a big unknown. However, we would expect certain key elements to be in place:
- A business that could have secured funding pre-Coronavirus
- An understanding and confidence that the sector will not be impacted in the medium to long term
- A management team that has the right experience and quality to manage a business through turbulent times
- Systems and controls including high quality Management Information (MI)
Quality information will be required by all lenders to progress any application for funding. Amongst other things this will include:
- A written proposal/plan
- Integrated financial forecasts
- Downside sensitivities and scenarios
- Analysis of mitigating actions
- Analysis of the medium-term prognosis for the market
Expert Comment
Graeme Harrison, Director at CCBS Group which provides funding solutions commented:
“Undoubtedly, ‘CBILS’ will play a very important role throughout this period, however, it must be stressed that each financial institution will apply their own specific credit policy criteria and terms when shaping their offering. As a result, it is imperative that the business can demonstrate viability during the application process. At this early stage it also seems that the pledging of additional security within the business may be necessary, therefore in some instances, alternative forms of funding may be a better fit. Every client will be very different so it’s best to look at it on a case by case basis, however, I would say now more than ever, engaging with an advisor could be very beneficial.”
Summary
The CBILS is a very welcome intervention into the world of SME funding by the government and it will certainly help many businesses through these challenging times.
However, the CBILS is not “easy money” or a “magic money tree”.
You will need to approach your funders professionally and respectfully. The funders may represent large institutions but those making the decisions are people too – dealing with funders in challenging times requires experience, skill and patience. How something is communicated can be as important as to what is being said – so always try to communicate calmly, professionally and respectfully.
At these difficult times you may benefit from external support to manage the workload and to smooth the process with the funder. Specific areas where we can help include:
- Preparing a proposal / business plan for the funders;
- Preparing or reviewing an integrated financial forecast;
- Approaching and liaising with the funders; and
- Project managing the process at this challenging time for your business, enabling you to focus on your business.
RGCF has significant experience of the funding world and how to successfully raise funding, in good times and bad. If you would like to discuss this further, please contact:
Nick Johnson
CF Partner
nickjohnson@ryecroftglenton.com
07494 076 953
Alex Simpson
CF Senior Manager
alexsimpson@ryecroftglenton.com