The Coronavirus Business Interruption Loan Scheme: Is this it?

In this article we have summarised one of the current measures designed to combat the disruption caused by Coronavirus (COVID-19): the Coronavirus Business Interruption Loan Scheme (CBILS). Whilst in principle this seems like a positive initiative, we have concerns that there are a number of points which could potentially prevent the fast and unfussy lending requirements so urgently required by hard pressed businesses.

CBILS, announced in the 2020 Budget for facilities up to £1.2m, has been set up earlier than originally expected (available week commencing 23 March 2020) and extended to facilities of up to £5m. The basic premise is that the government will provide a guarantee to the lender (so far 40 lenders including the familiar names have signed up, list here) for up to 80% of the facility.

In one positive step, the government will cover the first 6 months’ interest of the facility. The business remains liable for the repayment of the capital and any remaining interest.

CBILS can apply to term facilities, overdrafts, invoice finance facilities and asset finance facilities.

However, the commentary from the British Business Bank in relation to CBILS raises a number of concerns:

“Its simple to apply and should take no longer than a standard application” – we should be seeking a solution that is faster than a standard application as in many cases this can take a considerable period of time.

“If the accredited lender can offer finance on normal commercial terms without the need to make use of the scheme, they will do so” – presumably this means that the borrower seeking this will need to go through a lender’s standard application procedure and credit approval to ascertain if it meets the criteria.

The purpose of the facility is for any applications that would have failed the participating lender’s application process to be made acceptable by adding the additional security of the government guarantee.

The initial lending criteria for the CBILS is as follows, although we expect more detail to be released shortly. The business must:

• be UK based with a turnover of no more than £41 million;
• operate within an eligible industry (list of excluded industries here notable excluded or restricted (restricted industries are limited as to the amount of the facility) industries include freight transport by road, various agricultural industries, insurance and re-insurance, and education; and
• have a sound borrowing proposal, but insufficient security to meet the lender’s needs.

Quite how the final bullet point will be interpreted in the current economic climate will be one of the keys to see if this facility is of any practical use to businesses.

How to apply?

You should approach one of the accredited lenders, listed here. Presumably if your incumbent bank is on this list that will speed matters up as they will have access to the financial history of the borrower.

It would seem sensible for potential applicants to get in place management information required by banks on a normal commercial loan application.

In practice whether or not the CBIL will be a success will be driven by the approach taken by lenders. Will they expedite this process to give hard pressed businesses the support which they need or will the CBIL add an additional period to what may already be an extended application process?

If you require assistance in meeting any of the legal requirements for the CBILS or any other banking facility, please don’t hesitate to contact us. We remain open and ready to assist. In addition we have contacts at many of the listed lenders locally to our offices and we may be able to facilitate contact.