Amongst the many issues associated with the Coronavirus, financial concerns come a close second after those of health. For businesses, the financial challenges can be both disconcerting and debilitating, but the Government have introduced various packages to aid businesses during this difficult period. One of the most appealing and perhaps vital of the packages considering the cash-flow issues experienced by many during these unprecedented times is the Coronavirus Business Interruption Loan Scheme facilitated by the government-owned British Business Bank. Here are some of the most frequently asked questions about the scheme:
What is the Coronavirus Business Interruption Loan Scheme (CBILS)?
It is a temporary state-funded scheme enabling small or medium-sized enterprises negatively affected by the pandemic to borrow up to £5 million under more favourable terms. Borrowing can take a myriad of forms including loans, asset finance, invoice finance and overdrafts. The Government will provide lenders with a guarantee of 80% on each loan (subject to a pre-lender cap on claims) and the first year will be interest-free. Terms can be up to six years for loans and three years for overdrafts and invoice finance.
Who is eligible?
The scheme benefits small or medium-sized businesses which are UK-based in their activities and have annual turnovers below £45 million. It is open to businesses from all sectors except for banks, insurers, reinsurers, and public-sector organisations including state-funded schools. Applications must demonstrate a viable borrowing proposal and a self-certified statement that the business has indeed been adversely impacted by the pandemic.
How do we apply for the scheme?
Applications can be submitted directly via the websites of one of the 40 accredited lenders. Some lenders, notably the banks, may require businesses to have been existing customers in order to apply. It is important to bear in mind that every lender will have a different perception of risk. In the event of an unsuccessful application, businesses can apply to other lenders without prejudice. Your lender may require you to take independent legal advice prior to any agreement particularly if a personal guarantee is involved.
Do company directors need to give personal guarantees?
As of last week, lenders have been prohibited from demanding personal guarantees on loans less than £250,000. They may, however, still request security for the facility. For any loans exceeding this value, borrowers must provide security, and lenders are entitled to ask for a personal guarantee should it be deemed appropriate. An individual’s main home, otherwise known as the Principal Private Residence, cannot be taken as security or a personal guarantee under any circumstance. To the relief of many borrowers, any recoveries from personal guarantees are capped at a maximum of 20% of the outstanding balance of the CBILS facility after the proceeds of all other available collateral have been applied.
What documents will we need to submit with our application?
Whilst the requirements vary from lender to lender, examples of useful documents include management accounts, cash flow forecast, business plans, historic accounts, and last but not least, details of assets. Some lenders may be more flexible or less onerous with their documentation and as such, the unavailability of certain documents should not deter businesses from applying.
How difficult is the process and what are the likelihoods of a successful application?
Every outcome is dependent on the facts and more so, on the assessment criteria set by the individual lenders. Noticeably, the requirement for a ‘viable’ proposal is subjective and financial adversity is independently determined by the lenders. There are also currently only 40 lenders listed under the scheme whilst there is a multitude of businesses in need of financial support as a matter of emergency. Unsurprisingly, widespread delays have been reported and according to data from UK Finance, only 0.65% of enquiries have resulted in loans as of last week. Nevertheless, as the scheme is only in its early stages, we can hope that necessary adjustments will continue to be made retrospectively.
Our annual turnover exceeds £45 million. Are the Government offering assistance to larger businesses?
The business is no longer classified as a small to medium-sized enterprise and as such, cannot benefit from the Coronavirus Business Interruption Loan Scheme. However, should the business’s annual turnover range between £45 million to £500 million, the business could qualify under the Coronavirus Large Business Interruption Loan Scheme instead. Much like its counterpart, the Government will provide a guarantee of 80% to enable banks to make loans of up to £25 million. However, businesses under this scheme will not benefit from an interest-free 12 months and loans will be offered at commercial rates of interest. It is also important to note that businesses can only apply if they have been unsuccessful in securing regular commercial financing in the first instance.