The Coronavirus Business Interruption Loan Scheme: Seeing through the fog

by Adrian Howells

Following the Government’s announcement of The Coronavirus Business Interruption Loan Scheme (CBILS), you will no doubt have found yourself inundated with communications about this from a variety of different firms, ourselves included. Whilst these communications set out the facts as listed on the British Business Banks (BBB) website, there is nevertheless a great deal of confusion around how CBILS will work, who is eligible and how the banks are approaching using CBILS to help businesses during the Coronavirus (COVID-19) pandemic.

At Quantuma, our team of experts has spent the last few weeks talking to banks, some in CBILS and some not, about how they are seeing the market develop along with their approach to it. This piece is not intended to provide you with a general overview of CBILS, as that has been covered on one of our FAQ pages, it is more to share some insights on the scheme, having talked to a wide variety of banks who are in the thick of it.

A full of list of accredited lenders through which the BBB are operating the scheme can be found here. It is important to note that not all banks are registered providers, and some are in the process of making their applications now. Therefore, the list is constantly changing and so we would recommend you check our website regularly to keep abreast of any developments to this.

Our observations:

Lenders are trying to be flexible

In almost every conversation we have had, banks are at pains to emphasise how flexible they are being. Nearly all are initiating their own measures to help their customers (for example, capital repayment holidays and covenant waivers) before seeking to load up stressed businesses with more debt through CBILS. Generally, these covenant waivers and capital repayment holidays are waived through without question. 

Banks can still explore using their own firepower to provide support and if a Business As Usual (BAU) product would meet a client’s needs and the bank can still provide that, this remains an options for borrowers. However, borrowers can insist on looking at the government-backed scheme only.

It is important that businesses seeking CBILS funding demonstrate a real need for the money they are requesting. It is not a free-for-all to load up the balance sheet – companies remain 100% liable for this debt and banks are wary of affordability post-crisis. 

A sensible first step would be that when a business speaks with their bank, the priority should be to ascertain what support is immediately on offer from the bank itself. 

Banks are looking after their own first

A very clear theme in our conversations has been that banks intend to use the CBILS funding to help their own clients first and foremost and not to take on new business. Banks are unwilling to help their competition by moving a competitor’s problem onto their own book, when the incumbent bank could/should/will sort. Whilst the scheme does allow registered banks to take on any client, it is clear to us that non-incumbent clients will be at the back of the queue. We therefore advise that businesses should speak with their existing bank first to discuss their situation.

This may mean that if a business is banked by a non-provider, then it could be somewhat difficult to access CBILS funding. In such an instance, it is worth the business speaking with their bank to understand what is on offer, or seeking expert help.

CBILS isn’t for everyone

It is important to note, that funding from CBILS will only be available to SME businesses who have experienced disruptions to their trading as a direct result of the COVID-19 pandemic, rather than businesses who were already distressed financially. Simply put, banks will not provide loans to applicants who have been on their watch list for some time or if they would have been considered un-creditworthy pre-crisis. This scheme is not designed to shore up businesses that were already struggling.

Understanding your security
An area of particular concern for borrowers is around personal guarantees (PGs). There is a good deal of confusion here which we will seek to clarify.

Firstly, for loans below £250,000 the Government has forbidden banks from taking a PG. However, for loans above £250,000, the majority of the banks we have spoken with will ask for the same security as they would have done for a loan under normal circumstances. Borrowers who would have been asked for a PG two months ago, will still be asked for one today. That said, a key difference to normal circumstances is that banks are expressly forbidden to take a charge over the borrower’s home. In addition, the PG is limited to the portion of the loan not secured by the Government, that is, 20%.

More generally, banks are obliged to seek the maximum security (as needed) from any business they are lending to. If the level of security available is sufficient for the loan being requested, in most instances the business will have to offer up this security against even a CBILS loan. It must be remembered that the borrower remains 100% liable for the debt. Therefore, all efforts and resources to recover a balance in default from a borrower will be made before a bank seeks any government funding. The Government guarantee is in the favour of the lender not the borrower.

Some applications will be dealt with more quickly than others

Generally speaking, banks are not processing applications for CBILS funding on a first-come-first-served basis. With sufficient volumes of applications and enquiries already being submitted, they are operating a ‘triage system’ instead, whereby they are responding to those most in need first.

It is still too early to say how long a standard process will take, lenders are talking about a timescale of around one week for those most in need, however there are clearly delays in processing, in part due to the weight of applications being made. The application process is also a little convoluted in that it requires two applications to be completed; one to the lending bank and one to the BBB. Included in the application is a requirement for businesses to prepare a cash flow forecast demonstrating the need and, in some cases, a business plan. 

How we can help

At Quantuma, our team of experts can help you no matter what situation you are in. We understand that this is a difficult time for everyone and COVID-19 has brought with it a significant amount of challenges for businesses of all sizes. Over the coming days, weeks and possibly months, we will be publishing insight and guidance to help support you.

Where CBILS is concerned, our team can help businesses by: helping to fill in applications, presenting businesses in the optimal (not necessarily best) light; providing the financial modelling required; project managing and working with lenders to get loan applications over the line and providing any other general advice to Finance Directors. The services we provide can be tailored to specific needs, so do get in touch with a member of our team today via the form below if you have any questions or queries. 

Please note: 

The content we share here seeks to summarise the experiences of businesses we are advising and our typical approach to their queries around COVID-19. We are operating in unprecedented times and recognise that this update may quickly become out-of-date as we progress further. We intend to provide regular insight and guidance to help you understand what we are seeing in the market, so that you may continue to stay abreast of new developments in these challenging times.