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The Government has introduced three loan guarantee schemes designed to provide financial support to otherwise viable UK businesses whose trading is suffering as a direct consequence of the COVID-19 pandemic and the resultant lockdown.
For the majority of SME’s, Coronavirus Business Interruption Loan Scheme (CBILS for short) funding is likely to be most appropriate source of funding and so this page focuses on the funding available through that scheme.
What are the funding schemes?
Bounce Bank Loan Scheme (BBLS)
Loans up to £50,000 for small and micro businesses
Loan limited to 25% of business turnover
Government guarantees 100% of loan
Interest and fees in first 12 months paid by government
No capital repayments for 12 months
Interest fixed at 2.5%
Loan term of 6 years, with no early repayment costs
No personal guarantees required
Coronavirus Business Interruption Loan Scheme (CBILS)
Loans up to £5 million for businesses with turnover up to £45 million
Available as cash flow loans, overdrafts and asset-based lending
Government guarantees 80% of the loan
Interest and fees in first 12 months paid by government
Interest rate set by individual lenders
Repayment terms of up to 6 years (3 years for overdrafts and invoice finance)
No personal guarantees (PGs)for facilities up to £250,000
Above £250,000 PG’s are at lender’s discretion, but cannot be taken over principle private residence and are capped at 20% of the outstanding CBILS balance once proceeds of business assets have been applied
Coronavirus Large Business Interruption Loan Scheme (CLBILS)
Loans up to £25 million for businesses with turnover up to £250 million and loans up to £50 million for businesses with turnover above £250 million
Available as cash flow loans, overdrafts and asset based lending
Government guarantees 80% of the loan
Interest rate set by individual lenders
Repayment terms of up to 3 years
No personal guarantees (PGs)for facilities up to £250,000
Above £250,000 PG’s are at lender’s discretion, but cannot be taken over principle private residence and are capped at 20% of the outstanding CBILS balance once proceeds of business assets have been applied
Lenders are able to set their own policies for interest costs, personal guarantees and capital repayments. Some lenders are offering capital repayment holidays at the outset of the loan.
Whilst borrowers are permitted to apply to any accredited lender, we are finding that lenders are looking after existing customers first and foremost.
Read our article
For some more practical points on how CBILS is operating, based on extensive conversations with lenders, Corporate Finance Director Adrian Howells has written an article
Each lender will review applications on a case by case basis and consider your business plan along with historical performance to make an informed lending decision.
It is clear that whilst there is a backlog of applications being processed by banks, more professional applications do stand out and move through the system with more ease. Therefore, although UK Finance has said on behalf of seven major lenders that forecasts and business plans are no longer a requirement for assessing CBILS, providing such additional information clearly makes for a stronger application.
Banks are looking to assess viability of companies pre-crisis, mitigating actions taken as a result of the crisis, quantifying the funding need and finally, affordability of funding post-crisis. It is critical that businesses are mindful that they remain 100% liable for all debt.
Watch our video
In this short video, Adrian Howells - director in our Corporate Finance team - explores what businesses need to know about lending security, how banks are approaching CBILS and finally whether CBILS is right for your business.
Directors are required to exercise reasonable care, skill and diligence as well as independent judgment. The reasonable test is an objective one measured as the knowledge, skill and care reasonably expected of a person in the position of director. Should an individual have specialist knowledge, this may be expected to meet a higher standard.
Making an application
In order to make an application, a director should be satisfied that there is a need for funding. In the current economic environment this will be for many a simple decision. In making an application the director should have a clear view on both the purpose and the quantum that is desired. Professional advice should be sought, as applicable, to assist in producing a cohesive business plan and/or to consider the rationale and assumptions.
Upon receipt of an offer of a loan, directors should consider its suitability in line with the business plan and the requirements of the business. This is particularly important where the terms offered are materially different to those requested. In the event of entering into such a facility, it is sensible that the directors record their rationale for entering into a facility that may be, by their own assessment, deficient to meet their business needs. Again, professional advice should be sought to consider both its suitability and also to consider alternative options that may be available.
In any such consideration the following practical steps would be appropriate:
Board meetings should be held to review and consider the application, progression and acceptance or otherwise. The basis and rationale of the decision-making process should be recorded.
Full board minutes should be taken and circulated to all directors after the meeting.
Maintain and review up-to-date management accounts and prepare regular cash flow forecasts so that any additional considerations can be identified, these may inform the decision-making process and can be taken into account.
Watch our webinar on directors' duties and CBILS
In May we ran a live webinar in conjunction with IBB Law on directors duties and CBILS and what the key considerations look like.
As part of our business diagnostic tool, we’ve created a guide to help businesses with their approach to any CBILS application process. Our team will guide you through a series of questions to capture the necessary information in order to present the right information.
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Video
Your guide to the Coronavirus Business Interruption Loan Scheme
Quantuma Corporate Finance expert Adrian Howells explains the Government's Coronavirus Business Interruption Loan Scheme (CBILS).
Contact Us
Get in touch with our expert, Adrian Howells
Director
Corporate Finance
London
+44 07725 909852
adrian.howells@quantuma.com
