Interest free loans – CBILS

UPDATE 27th APRIL 2020

The Government has announced today a new ‘quick and simple’ loan option for businesses to borrow between £2,000 and £50,000. A figure which is not more a quarter of the company turnover.

The government will pay the interest for the first year and will also underwrite the loan to the lender.

The application process will be open from 9am on Monday 4th May and loans are expected to be approved within 24 hours.

Find out more here, on the government’s fact sheet

 

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UPDATE 3RD APRIL 2020

After some considerable campaigning on behalf of small businesses, who claimed it was weighted against the very people who it was meant to be helping, the British Business Bank has relaxed the rules for eligibility.

The qualification criteria have been relaxed in the following ways:

• Borrowers do not have to explore other commercial sources of finance first before seeking a business interruption loan
• Personal guarantees waived for loans under £250,000
• Businesses turning over up to £500m will be able to ask for loans of up to £25m
• CBILS will be offered at commercial rates of interest.

Thanks to AccountingWeb for providing this useful information

Who is eligible? 

According to the British Business Bank eligibility checklist, to qualify for CBILS businesses must:

• Be a UK-based business beneath the £45m turnover cap
• Have a viable borrowing proposal outside the current pandemic
• Prove to the lender the loan will enable it to trade out of any short-term to medium-term difficulty.

Who is exempt?

• Banks and building societies
• Insurers and reinsurers (but not insurance brokers)
• Public-sector organisations, including state-funded primary and secondary schools
• Employer, professional, religious or political membership organisations
• Trade unions

The ICAEW and British Business Bank provide regularly updated advice regarding the scheme to provide help to businesses considering the scheme.

Nature of the guarantees

The loans are intended to cover term loans, overdrafts, invoice finance and asset finance facilities and come with an 80% government-backed guarantee to boost loan approvals for struggling businesses.

This essentially means the government will cover 80% of any losses, leaving lenders in danger of covering the remaining 20%. What Chancellor Sunak’s speech did not explain was that this “generous guarantee” would not prohibit lenders from demanding guarantees from borrowers before agreeing loans.

Keen to avoid exposure to this potential shortfall, lenders may have been asking would-be small business borrowers to prove additional guarantees. Should the borrower fail to repay the loan, the lender would pocket the 80% government guarantee and then go after the borrower for their personal guarantee to make good the missing amount.

Application of CBILS in context

Lloyds Bank explains in its application criteria that businesses will be able to borrow up to £250,000 on an unsecured basis under the CBIL scheme.  However, it emphasises, “The customer will remain liable for 100% of the debt, including any accumulated interest even if the Government guarantee has paid out.”

Lloyds offers the following example: if a business borrowing £100,000 over six years under CBILS fails with £80,000 still outstanding, the bank will pursue the customer for the outstanding debt. After all options are explored and £50,000 is reclaimed by the bank from the customer, the government will pay 80% of the outstanding £30,000 under CBILS.

The bank then “continues to look for the outstanding repayment of £30,000 from the customer.” If the customer is able to pay £20,000, the bank refunds 80% (£16,000) to the government [but] the customer remains liable for the £10,000 still outstanding.”

 

On Wednesday 11 March, the Chancellor announced a ‘Coronavirus Business Interruption Loan Scheme’, and that it would become available ‘over the coming weeks’.

This has been brought forward, and we now expect the new scheme to become available in week commencing 23 March 2020.

As well as loans, there are many other types of finance supported by the programme, depending on the provider. You can find out what type of finance they provide on our partner page.

It will be provided by the British Business Bank through participating providers, and will offer more attractive terms for both businesses applying for new facilities and lenders, with the aim of supporting the continued provision of finance to UK businesses during the Covid-19 outbreak.

The scheme provides the lender with a government-backed guarantee against the outstanding facility balance, potentially enabling a ‘no’ credit decision from a lender to become a ‘yes’. NB – the borrower always remains 100% liable for the debt.

The Government will also cover the first 6 months of interest payments, so businesses will benefit from lower initial repayments. The business remains liable for repayments of the capital. The maximum value of a facility provided under the scheme will be £5 million  (the original announcement suggested a maximum value of £1.2 million.)

Disclaimer: We are in the process of defining and agreeing the scheme’s details, specifications and eligibility and therefore information is subject to change. We will be updating our webpages to reflect any changes to CBILS as and when they are published.

CBILS SUPPORTS A WIDE RANGE OF BUSINESS FINANCE PRODUCTS, INCLUDING:

• Term facilities
• Overdrafts
• Invoice finance facilities
• Asset finance facilities

TO BE ELIGIBLE FOR SUPPORT VIA CBILS, THE SMALL BUSINESS MUST:

• Be UK based, with turnover of no more than £45 million per annum
• Operate within an eligible industrial sector (a small number of industrial sectors are not eligible for support or subject to limitations – see below)
• Be able to confirm that they have not received de minimis State aid beyond €200,000 equivalent over the current and previous two fiscal years
• be unable to meet a lender’s normal lending requirements for a fully commercial loan or other facility, but would be considered viable in the longer-term

NB Full eligibility criteria will be published when the scheme goes live w/c 23 March 2020

Finance terms are from three months up to ten years for term loans and asset finance and up to three years for revolving facilities and invoice finance.

To apply for an CBILS-backed facility, businesses may wish to consider approaching one or more participating lenders to discuss their borrowing needs.

Please note that a limited number of further eligibility restrictions and/or limitations do apply. Full details can be found here.

Almost all business sectors are eligible, however there are a small number of excluded/restricted sectors arising primarily from EU de minimis-State aid rules. 

 

IF YOU WOULD LIKE TO READ THIS INFORMATION ON THE BRITISH BUSINESS BANK WEBSITE PLEASE CLICK HERE