Many businesses have felt the effect of the Coronavirus pandemic. It has left many businesses questioning how companies will continue to operate. Concerns about VAT, rent, salaries and cash flow have been at the forefront of discussion. The UK Government recently announced the Coronavirus Business Interruption Loan Scheme (CBILS) in collaboration with the British Business Bank.
The scheme has gained a lot of interest from businesses, but with that a lot of questions and concerns.
Here are some answers to questions we have received regarding the CBILS.
What is the Coronavirus Business Interruption Loan Scheme (CBILS)?
A new scheme that can provide term loans, overdrafts, invoice finance or asset finance facilities for smaller businesses
across the UK who are experiencing lost or deferred revenues, leading to disruptions to
their cash flow.
The scheme provides the lender with a government-backed guarantee potentially
enabling a ‘no’ credit decision from a lender to become a ‘yes’.
What are the key features of CBILS?
- CBILS guarantees facilities up to a maximum of £5m available on repayment terms up to
six years for term loans and asset finance.
- For overdrafts and invoice finance facilities, terms will be up to three years. The scheme provides the lender with a government backed guarantee against the outstanding facility balance.
- There is no guarantee fee for SMEs to access the scheme. (Lenders will pay a fee to
access the scheme.)
- The Government will make a Business Interruption Payment to
cover the first 12 months of interest payments and any lender-levied fees.
- You (the SME) will therefore benefit from no upfront costs and lower initial repayments.
- At the discretion of the lender, the scheme may be used for unsecured lending for facilities of £250,000 and under.
- The Big Four banks have agreed that personal guarantees will not be taken as security for lending below £250,000.
- For facilities above £250,000, the scheme requires the lender to establish a lack or absence of security prior
to businesses using CBILS.
- Primary Residential Property (PPR) cannot be taken as security under the scheme. If the lender can offer finance on normal commercial terms without the need to make use of the scheme, they will do so.
Does the money come from the government?
No. The money comes from the lender, and 80% of the money is guaranteed to the lender by the government. The Government will make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied charges
Do I only have to provide a personal guarantee for 20% of the debt?
No. Personal guarantees will not be required for facilities under £250,000 and the borrower is responsible for 100% of the outstanding debt.
If I default on payments can the bank simply claim their 80% back from the government?
No. The borrower is responsible for 100% of the outstanding debt.
Is the criteria the same regardless of the lender?
No. Whilst there are certain criteria, lenders may offer different deals dependent on individual policy and rates.
Is the CBILS just available to provide loans?
The Scheme offers support to lenders who offer overdrafts, new asset finance and factoring facilities, in addition to loans.