The Coronavirus Business Interruption Loan Scheme (CBILS) offers loans of up to £5m. It will provide lenders with a Government-backed guarantee for 80% of the facility issued, therefore making many more lending applications viable in the eyes of the lenders.
There is no requirement for applicants to have had a normal commercial loan application rejected. It is currently expected that any applicants who have applied and received funds on normal commercial terms in response to COVID-19, will have these facilities retrospectively “rebooked” as CBILS loans. Applicants should, of course, confirm this with the lenders at the earliest opportunity.
Personal Guarantees (PGs) will not be required by the lender for loans below £250k, and some of the 80+ accredited lenders on the scheme are waiving this requirement altogether.
For loans above £250k, PGs may still be required, at the lenders’ discretion, however, they will be capped at 20% of the outstanding loan value (to account for the government guarantee). Further, CBILS does not allow a lender to take a security over the Principal Primary Residence of the business owner.
The borrower is always liable for all of the debt and must demonstrate that, were it not for the current pandemic, they would be viable and creditworthy.
The Government will also make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied fees so that businesses will benefit from no upfront costs and no payments for 12 months due to capital payment holidays.
Many of our clients and contacts are using a combination of government solutions. The speed at which funds are received from all the initiatives depends on the provider. Client feedback is that once the lender is satisfied and the offer issued, then funds are received relatively quickly. CBILS is further ahead than others, but it still may be advisable to consider other immediate sources of cash such as overdraft extensions and payment holidays to manage short term challenges until funding comes through. If charges are required on property/debtor book/leases, and legal support is required then this will delay proceedings.
We are unsure of the date that the scheme will end and applications must be made, but it was initially thought it would be six months from opening meaning 27 October 2020.
The lenders remain extremely busy; businesses with a serious urgent need will need to be prioritised. The Price Bailey team are in regular contact with many of the banks. Just like their clients, bank staff have learned in real-time with significant operational constraints and have been under a lot of pressure to deliver.
From our discussion with the mainstream lenders, we understand that their priority is to support the UK economy, and businesses, to trade through these difficult times. That being said, they must remain responsible lenders and will therefore only be looking to lend money to the businesses that they are confident can repay the debt in line with its agreed terms, once trading has returned to normal.
The majority of lenders are suggesting that applicants speak with their relationship manager in the first instance. Some lenders are asking businesses to complete an application form prior to approaching their relationship manager. This will likely detail previous years trading, the impact of COVID-19 and how the business plans to return itself to normal trading.
It is likely an average of the last three years of financial accounts and up to date management information, to the point of the virus, will be required.
Our advice is to undertake a detailed assessment of short term liquidity and speak to a relationship manager in the first instance.
To be eligible for support via CBILS, the business must:
- Be UK based, with a turnover of no more than £45 million per annum
- Generate 50% of turnover from trading activity
- Have a borrowing proposal which, were it not for the current pandemic, would be considered viable by the lender, and for which the lender believes the provision of finance will enable the business to trade out of any short- to-medium-term difficulty
- Operate within an eligible industrial sector
- Have not received “de minimis State Aid” beyond €200,000 equivalent over the current and previous two fiscal years.
There is not currently a consistent approach from Lenders regarding the eligibility of businesses which meet the above criteria but which have overseas or Private Equity ownership (whole or part). We expect that a broad approach will be adopted, but applicants should be aware Lenders are reviewing each business on an individual basis, and it is at their discretion how they will appraise each scenario.
Several lenders have also stated that they will not offer CBILS loans to new customers.
Key Facility Features
The table below summarises the key features of available products under CBILS.
All banks on the CBILS scheme offer unsecured lending for facilities of £250,000 and under.
For facilities above £250,000, the lender can decide what it needs for security; however, this cannot be the PPR of the borrower. Consequently, approvals for facilities under £250,000 are expected to be quicker.
How to apply?
CBILS applications must be made directly to a British Business Bank (“BBB”) accredited lender. In the first instance, they should approach their own provider via their relationship manager or relationship director as this will prove the quickest way to access funds.
The majority of the mainstream banks will only supply CBILS facilities to their current clients. Businesses ability to “shop around” may be limited, however, we do know lenders that will look at new business.
Almost all sectors are eligible – except for; Banks, Building Societies Insurers, The public sector including state-funded primary and secondary schools; Employer, professional, religious or political membership organisation or trade unions. There may be caps for specific other industries.
A business will only be eligible where they can confirm that they have not received “de minimis State Aid” beyond €200,000 equivalent over the current and previous two fiscal years. Most State Aid is notifiable and will be carved out from this, for example, EIS and R&D tax credits.
However, some grants and other government assistance received by typically innovative businesses which are not notifiable state aid can be classed as de minimis (this is often specified in grant documentation), and an example of this is funding under the Horizon 2020 scheme.
How do I evidence I have a viable business?
The team at Price Bailey have good relationships with banks as well as a list of questions that are useful to answer before approaching a lender. Please do not hesitate to contact the Price Bailey team if you have any questions or believe we may be able to assist you.
You must show in your borrowing proposal that were it not for the COVID-19 pandemic, your business would be considered viable by the lender, and for which the lender believes the provision of finance will enable your business to trade out of any short-to-medium term difficulty.
According to UK Finance, the benchmark for assessing viability or profitability for within a CBILS Application is 31 December 2019.
There will be many viable businesses that may be unable to show this (for example, through recent investment for growth, higher R&D expenditure or a turnaround and restructuring plan). Such applications will need to clearly set out the underlying reasons within their applications to enable the individual underwriter to take a fully informed view.
The process of proving serviceability is built from understanding the fundamentals from the previous year’s financial accounts, and bridging the gap between these and the projections/budgets.
Pre-profit or loss-making businesses are less likely to be successful in a CBILS application and may be better suited to raise equity finance, rather than debt.
Price Bailey is experienced in raising funds for many different situations, demonstrating viability is something we often get asked to support in.
To find out more, please contact Simon Blake, who leads our Strategic Corporate Finance team.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.