Apr 20

COVID-19: the Coronavirus Business Interruption Loan Scheme

Written by Jon Healey
Legal Director

DDI: 01423 724606
M: 07892 792461
E: jon.healey@raworths.co.uk

Information correct as at 27 April 2020

The UK Government has implemented the Coronavirus Business Interruption Loan Scheme (CBILS) to support long-term viable businesses who may need to respond to short term cash-flow pressures by seeking additional finance.

We explain in this article what CBILS is, who it is for and (given the high levels of demand for funds under the scheme) some practical tips for businesses who are considering applying for a loan under the scheme.

What is CBILS?

CBILS supports small and medium-sized businesses, with an annual turnover of up to £45 million, to access loans, overdrafts, invoice finance and asset finance of up to £5 million for up to 6 years.

The government will also make a ‘Business Interruption Payment’ to cover the first 12 months of interest payments and any lender-levied fees. This means smaller businesses will benefit from no upfront costs and lower initial repayments.

The government will provide lenders with a guarantee of 80% on each loan to give lenders further confidence in continuing to provide finance to small and medium-sized businesses.

The scheme is delivered through commercial lenders, backed by the government-owned British Business Bank.  With lender accreditations growing since the implementation of the scheme, there are now 48 accredited lenders able to offer the scheme, including all the major banks.  Logically, an applicant for a CBILS loan should first consider applying to its own incumbent bank.

Who is it for?

Eligibility requirements are as follows:

• your business must be based in the UK;
• your business must have an annual turnover of up to £45 million;
• your business must have a borrowing proposal which the lender would consider viable, if not for the coronavirus pandemic;
• you must be able to self-certify that your business has been adversely impacted by coronavirus.

The following businesses are not eligible to apply:

• banks, insurers and reinsurers (but not insurance brokers);
• public-sector bodies;
• further-education establishments, if they are grant-funded; and
• state-funded primary and secondary schools.

Practical Tips for successfully obtaining a CBILS loan

Demand for CBILS funding has been high and lenders have been deluged with large numbers of applications.  Therefore, we set out below some practical advice on what information might be required and what questions applicants should be prepared to answer, in order to help an application to proceed as smoothly as possible.  If you are intending to apply for a CBILS loan, you should have all the information required ready and prepared before commencing the application process.

Documentation/information required:

Each lender will have their own forms and requirements, but most will require all or some of the information listed below:

• last 12 months’ business bank statements;
• last three years’ full financial statements (including detailed profit and loss account);
• up to date management accounts showing year to date performance against budget;
• cashflow forecasts for the next 12 months, including assumptions, that demonstrate the funding requirement;
• short term rolling weekly cashflow forecasts for next quarter;
• details of any current debt held by the business;
• list of material assets and most recent asset valuations; and
• CVs and experience of the Senior Management Team.

Lenders will also want to understand the following in respect of each applicant:

• the purpose of the funding and how will the funds be used to address the issues caused by the coronavirus pandemic;
• the costs to be covered by the proposed funding;
• how much funding is required, for how long, and how such figure has been calculated;
• the financial performance of the business in the 12 months prior to the pandemic;
• how the coronavirus pandemic has affected the relevant business and the sector in which it operates;
• the planned actions post lockdown to recover and get back to pre-pandemic performance;
• details of actions taken to date to use Government support measures, i.e. furloughing of employees, VAT deferment, Time To Pay etc.; and
• details of self-help actions taken, i.e. deferral of dividends, cancelling discretionary bonuses, capex etc.

Other forms of government (backed) loan funding for businesses

If an applicant does not meet the criteria for a CBILS loan, it should consider the following other schemes:

• Coronavirus Large Business Interruption Loan Scheme (CLBILS) which facilitates access to finance (of up to £50 million) for businesses with a turnover above £45 million;
• The Future Fund (to commence in May 2020) will provide convertible loans to innovative companies ranging from £125,000 to £5 million, subject to the company attracting the equivalent match funding from third-party private investors and the company having previously raised at least £250,000 in equity investment from third-party investors in the last 5 years.
• ‘Bounce-back’ micro loan scheme (announced Monday 27 April 2020) which entitles businesses to get loans worth up to 25% of turnover, up to a maximum payment of £50,000. The government will pay the interest for the first 12 months and will back them 100%. There will be no forward-looking eligibility test.

If you would like to discuss any aspect of the CBILS or the requirements of any application for a loan under this scheme or the relevant loan documentation, please contact Simon Morris or Jon Healey in the corporate team at Raworths.