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

3rd April, 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 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. Following some initial feedback that the scheme was not operating as intended (as of 2 April less than 1,000 loans had been approved out of 130,000 enquiries), the Chancellor announced revisions, which will be operational from 6 April 2020.

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 will be announced later in April, but it will include a similar 80% government guarantee to enable firms with an annual turnover of between £45 million and £500 million to access loans of up to £25 million.

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.
The scheme provides the lender with a government-backed, partial guarantee (80%) against the outstanding facility balance, subject to an overall cap per lender.
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.

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 benefitting 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. Given there is likely to be a big demand for facilities, BBB are asking that businesses consider applying via the lender’s website in the first instance. 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 foreecasts, 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 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.

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

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How to Apply

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