The Chancellor announced a second major round of financial stimulus on 20th March 2020 that included the Coronavirus Business Interruption Loan Scheme (CBILS) which commenced on 23rd March 2020, brief details of which are as follows:
- Government to guarantee 80% of each loan made under scheme
- Guarantee to apply to loans up to £5m in value
- Businesses to pay no interest for first 12 months
- Government will pay the interest charged by lenders for first 12 months
- There will be a per-lender cap on claims under the guarantee
- No fees to be charged by Government for providing the guarantee either to banks or customers
- There are 40 accredited lenders in all
- Applies to:
- UK based businesses with a turnover of no more than £45 million per year
- businesses meeting the other British Business Bank eligibility criteria
CBILS can provide facilities of up to £5m for smaller businesses across the UK who are experiencing lost or deferred revenues, leading to disruptions to their cash flow.
Latest CIBLS News (26th March 2020):
A CBI webinar today (26th March) included a representative from the British Business Bank, and the following updates are based on the webinar discussion and answers given to questions raised during the webinar. It is subject to re-confirmation with individual CIBLS lenders in each case:
Personal Guarantees (PGS) & Loan Security: the 40 or so accredited lenders on CIBLS have been told that they cannot insist on taking security over individuals’ residential properties as part of personal guarantees up to £250,000. Above that figure, PGs may include charges on personal residences.
For CIBLS loans up to £100,000, PGs may be taken but are not required and cannot, like the higher limited loans, contain residential property charges. This will come as some relief to business owners who are looking for support from CIBLS. Other forms of personal assets may be included as part of a security package for loans, such as share portfolios.
CIBLS lenders (which range from high street banks to challenger banks) are applying different criteria to applications depending on their risk appetite, so it pays to shop-around for terms that are suitable. However, it is likely that lenders will prioritise existing customers then move to service new applicants.
CIBLS Viability Test (VT): these tests can be applied with a retrospective analysis of the business seeking a loan to a time before the Covid-19 measures were taken. So, if a business was viable and strong before the Covid-19 pandemic, this can be taken into consideration when the CIBLS application is made.
“The Stranded Middle” (TSM): This term applies to companies that are too large to qualify for CIBLS support (upper limit is a turnover of £45 million per year- which is understood to refer to group turnover), but not large enough to qualify for the Bank of England’s corporate facility.
There are believed to be between 4000 – 5000 companies falling into the TSM category.
TSM businesses are therefore effectively locked-out of the Government’s financial support packages, apart from being eligible for the Job Retention Scheme to assist with ‘furloughing’ employees. The Treasury is working to bring forward options to help TSM companies, which might include some form or equity-taking, but this is all in the pipeline and to be confirmed.
Asset Purchasing with CIBLS loans: It is now becoming clear that CIBL loans can only be used for working capital requirements and cannot, because of existing State Aid rules, be used to buy productive assets, such as new vehicles by road haulage companies. There is further clarity expected on this from the Government.
Employee threshold for CIBLS loans: A CIBLS applicant can have more than 250 employees, as long as its turnover is within the £45 million turnover per year limit.
Key Features
Its key features are as follows (courtesy of the British Business Bank):
- Up to £5m facility: The maximum value of a facility provided under the scheme will be £5m, available on repayment terms of up to six years.
- 80% guarantee: The scheme provides the lender with a government-backed, partial guarantee (80%) against the outstanding facility balance, subject to an overall cap per lender.
- No guarantee fee for SMEs to access the scheme: No fee for smaller businesses. Lenders will pay a fee to access the scheme.
- Interest and fees paid by Government for 12 months: The Government will make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied fees[1], so smaller businesses will benefit from no upfront costs and lower initial repayments.[2]
- Finance terms: Finance terms are up to six years for term loans and asset finance facilities. For overdrafts and invoice finance facilities, terms will be up to three years (and see above for latest updates).
- Security: At the discretion of the lender, the scheme may be used for unsecured lending for facilities of £250,000 and under. For facilities above £250,000, the lender must establish a lack or absence of security prior to businesses using CBILS. If the lender can offer finance on normal commercial terms without the need to make use of the scheme, they will do so (see above for latest updates).
- The borrower always remains 100% liable for the debt.
How to apply for a CBILS-backed loan facility
- There are 40+ participating banks (lenders) in the scheme and it is to these the businesses are required to apply.
- Use your usual bank if it is on the list, otherwise approach one in your area
- Go to the lender’s own website first of all
- The types of banking facilities that can be obtained from lenders covered by CBIL include:
- Term loans
- Overdrafts
- Asset finance
- Invoice finance
Eligibility for CBIL loans
Smaller businesses from all sectors can apply for the full amount of the facility.
See this Checklist for SMEs
Important Health Warning for SMEs
As we have pointed out before in our blog Coronavirus Business Support Package- Key lessons to be learned from the 2008 EFG , it is vital that all businesses thinking of applying for a CBIL-backed loan note and understand that the CBILS guarantee is to the lender and not the business. As with any other commercial transaction, the borrower is always 100% liable for repayment of the facility supported by CBILS.
Additional Information
- CBIL Scheme FAQs for businesses thinking of applying for a CBIL-backed loans.
- Information for Lenders in the CBIL scheme
What are the Lenders saying?
We have searched around and found that most of the lenders we have looked at are saying broadly aimilar things about how they will deal with CBILS applications.
Below are extracts from the CBILS webpages of Barclays and LLoyds TSB by way of example:
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