Updated advice 28 April 2020: CBILS came into effect from Monday 6 April 2020, but need to be applied retrospectively to any offer made since 23rd March 2020 . These announcements open up the scheme to a wider range of businesses, but is it right for you and your business. Read more about the support for businesses through the Business Interruption Scheme.
Two key changes were announced on 28 April – the lender cap has been removed (this increases the amount the bank can reclaim from the government under their guarantee) and banks are now not to look forward to assess viability.
Importantly, access to the scheme has been opened up to those smaller businesses that would have previously met the requirements for a commercial facility but would not have been eligible for CBILS. Insufficient security is no longer a condition to access the scheme.
Rishi Sunak announced yesterday details for the new Bounce Back Loan Scheme. Small businesses will benefit from the new fast-track finance scheme, providing loans with a 100% government-backed guarantee for lenders. If you are a small business who struggled to get a CBILS loan then this could be for you. The loans will be easy to apply for through a short, standardised online application. The loan should reach businesses within days – providing immediate support to those that need it as quickly as possible. Read more about Bounce Back Loans.
When Rishi Sunak stood up and announced the new Coronavirus Business Interruption Loan Scheme (CBILS) and the £330 billion he was putting behind initiatives it sounded as though this was going to be the magic bullet that businesses needed to be confident there was a longer term solution to help them through the economic crisis caused by the Coronavirus.
It was very clear that banks were not prepared for this and have been working extremely hard behind the scenes to catch up. This week we have started to hear more from the clearing banks about their policies and our firm has spent time talking to our banking contacts to understand local policies.
The CFN, of which we are a member firm, has assisted to lobby banks to remove the requirement for a Personal Guarantee for loans under £250k and this was confirmed by the main lenders on 26th March. However, for loans higher than this, PGs from any director owning more than 10% of the business, and a debenture from the Company, will be required in most cases. We have also been informed that CBILS is now open to sole traders and partnerships, not just limited companies.
We have always worried that the scheme will not be suitable for all SME’s and when it is will take a long time to access. Notwithstanding the pressure local Relationship Managers are under it’s unlikely that valuers are going to visit sites during lockdown and the number of applications will undoubtedly be overwhelming.
Add to this that it is likely that the mainstream banks will only welcome applications from existing customers and the fact that many of the other funders in the list of 40 lenders are not close to having products ready we are encouraging clients to focus on other funding and measures first.
There will come a time when thinking about a bank loan application is right and we thought we’d share a few tips on what to consider before talking to your bank about funding.
Don’t lose focus
In our cash flow post we outlined other practical steps that you could take aimed at helping you manage cash. This should be a priority as self-help will have immediate results.
It might be obvious, but we think that well thought through and structured applications will be seen in a more positive light by the bank than general conversations around support.
Banks will assess applications in the same way they always have (because they will use the same process, systems and people) and therefore management accounts, a business plan and forecasts will be essential parts of the application. You might also keep an analysis of creditors, debtors and time to pay arrangements with HM Revenue & Customs (HMRC).
Structure your argument
In your business plan, you should focus on the strength of the business before the crisis, its trading performance and ability to generate cash.
You should also outline the path back to this position making clear the steps you are taking and the time frames you are working to.
In their appraisal of the business plan, banks will want to understand management capability and whether there are any long-term implications of the economic fallout on the business or industry it operates in.
Look towards other funders
There is no doubt that other funders, alternative and second tier, will be looking to fill the gaps left by the banks. We understand that peer-to-peer lenders are trying to be included in the plans announced by the government. Alternative lenders may offer to fund but their fees, terms and interest rates need to be checked carefully.
And finally Don’t be afraid to ask for advice and support. There is a lot of information out there, some of it confusing and some contradictory, so if you are unsure about anything or just want to sense check your plans please don’t hesitate to call us on 01904 655202.
23rd March 2020: The Coronavirus Business Interruption Loan Scheme (CBILS) was announced by the Chancellor in his Spring Budget 2020. It is temporarily replacing the Enterprise Finance Guarantee (EFG), with the British Business Bank offering a higher percentage guarantee over business loans to give lenders greater confidence in providing finance to SMEs.
The scheme supports funding for SMEs who don’t have appropriate assets to offer as security. Personal guarantees will not be required for loans under £250k and the scheme will not allow any lender to take a charge over a business owner’s personal private residence. But Personal Guarantees and charges over other assets, personal and corporate, will be expected for loans over £250k. It is therefore not always relevant to companies which are asset heavy.
The British Business Bank initially offered to guarantee up to 80% of a funding line, subject to a maximum of £1.2 million however this was increased to £5.0 million on 17 March 2020. In new announcements made on 20 March 2020 this scheme will now be interest free for 12 months.
Security: 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.
To be eligible to apply for CBILS, you must meet the following criteria:
Lenders are managing these applications largely through their Relationship Manager networks, or call centres. The specific details of who would meet the criteria, and the likely interest rates for this funding haven’t yet found their way to the frontline staff; affordability assessments still apply, and funding applications still require credit committee approval. At present it is estimated that this scheme will take 4-12 weeks to access.
A drawback is that only 40 financial institutions can provide finance through the CBILS, but only 9 or 10 are ready as at 26th March 2020. There is a move to approve more accredited lenders, for example the peer to peer lenders, so it is hoped that access to this funding will be increased soon. At present, high street banks are only accepting applications from their existing customers.
We are in regular contact with funders to get the latest on this policy in practice and will post updates here as we receive them. The British Business Bank is still updating its website but current information can be found at https://www.british-business-bank.co.uk/ourpartners/supporting-business-loans-enterprise-finance-guarantee/#eligibility-restrictions.
If there is a need for immediate funding you should explore your options as soon as possible.