Second to the Furlough Scheme, of which you can read our commonly asked questions here, we have been asked a lot of questions surrounding the Coronavirus Business Interruption Loan Scheme. Whilst the following may not answer every question, hopefully it should be a bit of a useful tool to help guide anyone through this process. As ever though, if you do wish to talk it through and need further guidance, please don’t hesitate to get in touch.
What is the CBILS scheme?
Put simply, the CBILS or Coronavirus Business Interruption Loan Scheme is an 80% Government backed loan that is open to Businesses to help them get through these though times, caused by the Coronavirus. The purpose of this is to support businesses through this difficult trading period by offering ‘cashflow loans by encouraging banks to lend. In addition to this the Government will make a Business Interruption Payment to cover the first 12 months of interest payments and any charges levied. The period in which loan applications can be made is currently set to run for 6 months.
What does the 80% Government backed guarantee mean?
This has caused some confusion as to what this means in reality to businesses borrowing under the CBILs scheme. The 80% guarantee is providing the LENDER a partial guarantee over the amount they are lending out not the borrower. The borrower is still 100% liable for the debt. What this means is that the lenders are guaranteed to be reimbursed should you default, but only after exhausting all avenues to recoup the amount back off the borrower. What this means depends on the terms in the loan agreement (see further below re Personal guarantees).
Eligibility – Am I eligible to apply?
As long as the below applies to you, then you are eligible to apply for the CBILS scheme:
• Be UK-based in your business activity
• Have an annual turnover of no more than £45 million
• Have a borrowing proposal which the lender would consider viable, were it not for the current pandemic
• Self-certify that it has been adversely impacted by the coronavirus
What about Sole Traders/Self-employed/Partnerships?
These are all eligible to apply too as long as they fit with the above eligibility requirements AND their Business Activity is operated through a business account. If you are unsure what type of account you have, contact your bank to find out.
Am I guaranteed to get a loan?
No. There needs to still be a valid commercial reason behind why the banks should loan your business this money. If for example the business had been failing for a number of years, then it is unlikely you will qualify. A successful loan application will be dependent upon a number of things including your ability to demonstrate that prior to COVID-19 your business operated at a level sufficient to repay a loan for the amount requested
Will they require a Personal Guarantee?
For the first £250k borrowed, Lenders CANNOT ask for a personal guarantee. This means that your personal assets are not liable to be seized if you aren’t able to make the payments but doesn’t mean your business assets are offered the same protection. This does, however, only apply where the loan application is made in the name of a limited company. Sole traders and partnerships will be held personally liable, as with any other debt they incur.
Above this amount it depends then on the Lender themselves, but I would imagine it would be likely that this would be required. This however does exclude your principle private residence and the recovery amount is limited to 20% of the total loan value after the proceeds of any business assets seized is applied.
How much CAN I borrow?
Lenders can provide loans, overdrafts and asset/Invoice financing up to a value of £5million. That being said it’s worth bearing in mind the above imposed limits with regards to personal guarantees.
How much SHOULD I borrow?
This will massively depend on the cash needs of your business over the perceived future that the Coronavirus is likely to have a negative impact. First step would be to make a cash flow forecast to work this one out and you can some guidance on how to do that here. I’d then argue that once you have a figure in mind, it’s best to err on the side of caution and multiply it by anywhere between 1.2-1.5 times.
If, at the end of 12 months (the period in which the Government foot the interest bill, you might find that things have turned out better than anticipated then, subject to early repayment penalties (see below) you could pay back any excess borrowed to avoid unnecessary costs.
Where can I apply?
There is a long list of accredited providers which is available here. Each lender has their own method for application.
Do I have to apply to my current bank?
No, not necessarily but it may be the easiest place to start. Some banks do have some restrictions as to who can borrow – meaning you have to be a customer of theirs to begin with. HSBC and Lloyds are examples of this. In addition, if one lender turns you down there is no reason why you can’t then try another lender. Check the list of accredited lenders here for those who are offering the CBILS scheme.
What information is the Bank likely to require?
Again, this is likely to differ between financial institutions but so far, the information that we have found Lenders have asked for has been:
• The last set of signed Accounts – including possibly any for up to the last 2 years
• Draft Accounts – if the above are too far outdated (e.g. Signed 2018 but 2019 are only at Draft stage)
• A Cash flow forecast for the next 12months
• Up to date Management Information – this can be a P&L and Balance sheet taken from Xero up to the last reporting Month and may also include Debtors and Creditors balances as at those dates
• Information of any other Finance Agreements (Loans, hire purchases etc) that you may have
• Most banks will have their own CBILS form which they require to be filled in, as well as the above being provided too
How long does it take?
How long is a piece of string…..but in all seriousness we have seen some mixed response times on these loan applications from within a week to still waiting for a reply after 4 weeks. We’ve noticed in part, this may be depended on your lender – with HSBC so far being the quickest, to Santander being one of the slowest. It might be worth asking around being considering who to apply to.
What kind of interest rate can I expect?
This will depend largely on the usual aspects taken into account by lenders when assessing the risk profile of yourself as a borrower. That being said we’ve seen interest rates vary from 4% to 8% so far being offered.
Can I repay the loan early or will there be any fees?
This is still a bit of an unknown and will likely depend on three things; The amount borrowed, the lenders normal agreement terms, and the length of term for the loan. I would definitely recommend though finding this out as it may change your view on the amount you may want to consider borrowing.
Will the Government extend the guarantee to 100% of the loan?
I think for the moment we can probably say that this measure is off the table, and you can see why. If the Government backed the full loan than there’s no risk to the banks. If there’s no risk than there’s no need to risk assess your borrowers. Before you know it, banks might just be tempted to lend to whoever and when the loans default as the Government to foot the bill. Coronavirus is having enough of an impact on our economy as it is without the potential of a repeat of 2007/8 GFC again….
As ever, if you wish to talk through your options or need any assistance in your application, please do not hesitate to ask.
- Landline – 01326 660022
- Mobile/WhatsApp/Text – 07779799995 – Mike Hutchinson
- Zoom ID – 205 677 7765 – Mike Hutchinson