The Coronavirus Business Interruption Loan Scheme – Is your business eligible?

21st July, 2020 by Ian Ilersic

In the spring 2020 budget, Chancellor of the Exchequer, Rishi Sunak, announced a temporary COVID-19 business interruption loan scheme through the British Business Bank (BBB). The aim is to support businesses with a turnover of up to £45 million in accessing bank funding by providing lenders with a guarantee of 80% of loan value to support lending to SMEs. The Coronavirus Business Interruption Loan Scheme (CBILS) went live on 23 March 2020 and will run initially for 6 months. The scheme has been updated more than one since launch, addressing concerns as to its operation.

The Chancellor also confirmed that a new Coronavirus Large Business Interruption Scheme (CLBILS) would be deployed to support businesses with a turnover higher than the eligibility threshold for CBILS. Full details of CLBILS were confirmed on 17 April. If your business has an annual turnover of over £45 million, see our separate article on CLBILS here to find out whether your business is eligible.

A further scheme, the Bounce Back Loan Scheme (BBLS), launched on 4 May and will help small and medium sized businesses borrow term loans between £2,000 and £50,000. The government guarantee to lenders is for 100% of the loan. The intention is for a short, standardised online process to provide quicker access to funding for the smallest businesses. See our separate article on BBLS here to find out whether your business is eligible.

CBILS can provide facilities of up to £5 million for smaller businesses who are experiencing lost or deferred revenues, leading to cashflow disruption. CBILS supports a wide range of business finance products, including term loans, overdrafts, invoice finance and asset finance. Originally, CBILS could only be provided to viable businesses that were not able to access funding on normal commercial terms. This has now changed so that all viable businesses affected by Covid-19 are eligible. The initial feedback was that many small businesses were being offered standard bank products rather than the more favourable CBILS product that is interest and fee free for 12 months (see below). This should broaden accessibility for businesses who urgently need access to funding.

If you have previously been unsuccessful in securing CBILS funding from your lender, you may consider whether you can now apply again under the revised scheme. The changes should be applied retrospectively by lenders for any CBILS facilities offered since 23 March 2020.

Any facilities which were offered on normal commercial terms since 23 March 2020 to businesses which had sought CBILS funding, should also be moved onto CBILS terms wherever possible, provided that the borrower meets CBILS eligibility criteria.

The key features of CBILS are:

The maximum value of a facility provided under the scheme will be £5 million. Following the launch of BBLS, the minimum amount for term loans and overdrafts is £50,001, although lenders delivering asset or invoice finance facilities only will still be able to provide finance at less than £50,001 under CBILS.
The scheme provides the lender with a government-backed, partial guarantee (80%) against the outstanding facility balance. Originally, there was an overall portfolio cap per lender but this has now been removed.
There are no fees to access the scheme for businesses.
Interest and fees are paid by Government for 12 months. 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.
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.
Security: Originally, for facilities above £250,000, the lender had to establish a lack or absence of security prior to businesses using CBILS. This is no longer a condition to access the scheme.
An important change is that lenders can no longer seek personal guarantees in respect of facilities under £250,000. Personal guarantees may still be required at a lender’s discretion for facilities above £250,000, but they are capped at a maximum of 20% of the outstanding balance of the CBILS facility after the proceeds of business asset recoveries have been applied, and a guarantor’s principal private residence is not at risk.
The borrower always remains 100% liable for the debt (the guarantee is to the lender, not the business).

Government has confirmed that the amount of funding available under CBILS will be demand-led so funds will not run out. There is no immediate need to approach a lender if you do not need finance in the short term.

Eligibility

Smaller businesses from most sectors can apply for the full amount of the facility. The following trades and organisations are not eligible: Banks, Building Societies, Insurers and Reinsurers (but not insurance brokers); The public sector including state funded primary and secondary schools; Further education establishments, if they are grant-funded.

To be eligible for a facility under CBILS, an SME must:

Be UK-based in its business activity, with annual turnover of no more than £45 million
Have a borrowing proposal which, were it not for the current pandemic, would be considered viable by the lender
Self-certify that is has been adversely impacted by the coronavirus.
Not have been classed as a ‘business in difficulty’ on 31 December 2019, if applying to borrow £30,000 or more (but see below in relation to changes from 30 July 2020).

A ‘business in difficulty' is one that, as at 31 December 2019, had:

Accumulated losses of more than half of its subscribed for share capital for limited companies (or its capital for unlimited companies). For a limited company, if deducting accumulated losses from the company’s reserves leads to a negative amount that exceeds half of the company’s subscribed share capital. This requirement does not apply to SMEs (see below) less than 3 years old on 31 December 2019; or
Started, or had fulfilled the criteria to be put into collective insolvency proceedings (winding-up, administration, voluntary arrangements under insolvency legislation, bankruptcy); or
Previously received ‘rescue aid’ that was yet to be reimbursed (or, in the case of a guarantee, terminated); or
Received ‘restructuring aid’, and was still under a restructuring plan. What constitutes rescue or restructuring aid is normally the subject of a specific state aid approval from the European Commission; or
(where it does not meet the SME critieria) has fallen below solvency ratios for the previous 2 years. If a business which is not an SME has a book debt to equity ratio greater than 7.5 and its EBITDA interest coverage ratio was below 1.0 during the relevant two year period, it will be classed as ‘in difficulty’.

SMEs can include self-employed people, family businesses and partnerships or associations regularly engaged in an economic activity. It includes any micro, small or medium sized business that employs fewer than 250 people and has an annual turnover of no more than £45 million.

With effect from 30 July 2020, criteria around the classifications of businesses in difficulty have changed. Following changes in EU law on state aid, businesses with fewer than 50 employees and less than £9 million in annual turnover and/or annual balance sheet will not be considered in difficulty unless they are subject to collective insolvency proceedings under national law or in receipt of rescue aid (which has not been repaid) or restructuring aid (and are still subject to a restructuring plan). This change means that some businesses who were previously unable to access CBILS will be able to do so.

Sole traders and freelancers are eligible to apply as long as the business activity is operated through a business account. The business must generate more than 50% of its turnover from trading activity.

CBILS runs independently of other forms of government support that businesses may be benefiting from (for example, business rate reliefs and unrelated grants). A business will not be precluded from seeking a loan under CBILS because it has availed itself of other forms of support.

If a business has previously had de minimis state aid, it does not impact eligibility for CBILS and does not need to be taken into account by the Lender. De minimis state aid is state aid of up to €200,000 in total during the current and previous two fiscal years. If a business has received state aid above that threshold, it may impact CBILS eligibility.

How to Apply

CBILS is available through BBB’s 40+ accredited lenders. These are listed on the BBB website. These lenders range from high-street banks, to challenger banks, asset-based lenders and smaller specialist local lenders.

In the first instance, businesses should approach their own provider – ideally via the lender’s website. Telephone lines are likely to be busy and branches may have limited capacity to handle enquires due to social distancing.

BBB are also asking businesses to consider the urgency of their need – it is possible that some businesses may be looking for regular longer-term finance rather than ‘emergency’ finance, and there may other businesses with a more urgent need to speak with a lender. In assessing applications for CBILS loans, lenders are typically requesting management accounts, cash flow forecasts, business plan, historic accounts and details of assets. The requirements vary by lender so if you do not have everything mentioned, do not be put off from speaking to your lender if you need additional funding.

Decision-making on whether businesses are eligible for CBILS is fully delegated to the accredited CBILS lenders.

Further Information

BBB asks that any questions are directed by businesses to their current providers, not BBB directly. The BBB website contains links to:

If you have any queries regarding business funding (under CBILS, CLBILS or otherwise) please do not hesitate to contact one of our team.

The information on this site about legal matters is provided as a general guide only. Although we try to ensure that all of the information on this site is accurate and up to date, this cannot be guaranteed. The information on this site should not be relied upon or construed as constituting legal advice and Howes Percival LLP disclaims liability in relation to its use. You should seek appropriate legal advice before taking or refraining from taking any action.

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