Government revamps Coronavirus Business loan scheme

The Government has reformed the business interruption loan to make it easier for small and medium sized businesses to access finance. Following criticism that the Coronavirus Business Interruption Loan Scheme (CBILS) was not achieving expected take up by business the Government has sought to make changes to improve access. These reforms have focused on smaller businesses as well as a creating a new avenue of funding for larger businesses offering new government-backed loans of up to £25m to firms with revenues of between £45m and £500m.

The major updates to the loan scheme include:

• Under the scheme, lenders will no longer seek personal guarantees of any form for facilities below £250,000.
• For any loan facilities above £250,000, banks may continue to seek personal guarantees from company directors, at their lender’s discretion, however these will now exclude the Principal Private Residence (PPR) and any recoveries are to be capped at a maximum of 20% of the outstanding balance of the CBILS facility.
• Businesses are able to approach multiple lenders, meaning that potential borrowers should be able to approach other banks beyond their existing one.
• The British Business Bank has said that access to the scheme is now open to smaller businesses facing cashflow difficulties who previously would not have been eligible for CBILS because they met the requirements for an alternative standard commercial facility.
• There is now a new loan facility for larger businesses with revenues between £45m and £500m, with new government-backed loans of up to £25m.

“These updates to the CBILS are welcome, however in the previous iteration poor implementation of the scheme meant that many businesses from the tech sector who were seeking funds faced difficultly accessing the scheme,” said Neil Ross of techUK.

“While these improvements are welcome there remain questions around how suitable the loan scheme is for start-ups as well as SMEs in the tech sector who require loans above £250,000, but do not have significant assets against which to secure the loan.”

“This is a particular risk area as many SMEs in the tech sector do not hold large amounts of assets against which to secure loans, with the value of their business held in intellectual property and human capital and operating using rented office space and software purchased through subscriptions.”

New Lenders announced under the Coronavirus Business Interruption Loan Scheme (CBILS) 

On 11th April 20202, The British Business Bank announced it had approved four new lenders for accreditation under the Coronavirus Business Interruption Loan Scheme (CBILS) – The Co-operative Bank, Cynergy Bank, OakNorth Bank and Starling Bank. More than 80% of the UK’s smaller businesses have a finance relationship with the 40+ existing CBILS accredited lenders. The British Business Bank is accelerating the onboarding of new lenders to further extend the scheme’s reach and has significantly increased the size of its accreditation team to manage the volume of interest.

The Bank is reviewing applications from a wide range of lender types – from PRA-regulated banks, to platform lenders, debt funds, invoice finance lenders, asset finance lenders and responsible finance lenders.

Shortly before the launch of CBILS, three lenders – Arkle Finance, Close Brothers and Secure Trust Bank – were accredited under the Enterprise Finance Guarantee (EFG) scheme and have also been accredited under CBILS and are ready to take applications from smaller businesses. Coutts has been accredited for CBILS as part of RBS Group’s existing accreditation.

About the Coronavirus Business Interruption Loan Scheme (CBILS)  

The Coronavirus Business Interruption Loan Scheme, delivered through 40+ British Business Bank accredited lenders, is designed to support the continued provision of finance to UK smaller businesses (SMEs) during the Covid-19 outbreak. The scheme enables lenders to provide facilities of up to £5m to smaller businesses across the UK who are experiencing lost or deferred revenues, leading to disruptions to their cashflow. The scheme supports a wide range of business finance products, including term loans, overdrafts, invoice finance and asset finance facilities.

Scheme features

• Up to £5m facility: The maximum value of a facility provided under the scheme is £5m, available on repayment terms of up to six years.
• 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.
• 80% guarantee: The scheme provides the lender with a government-backed, partial guarantee (80% gross) against the outstanding facility balance, subject to an overall cap per lender.
• No personal guarantees for facilities under £250k: Personal guarantees of any form cannot be taken under the scheme for any facilities below £250k.
• Personal guarantees for facilities above £250k: Personal guarantees may still be required, at a lender’s discretion, but recoveries under these are capped at a maximum of 20% of the outstanding balance of the CBILS facility after the proceeds of business assets have been applied. A Principal Private Residence (PPR) cannot be taken as security to support a personal guarantee or as security for a CBIL backed facility.
• Security: For all facilities, including those over £250,000, CBILS can now support lending to smaller businesses even where a lender considers there to be sufficient security, making more smaller businesses eligible to receive the business interruption payment.

The borrower always remains 100% liable for the debt.

New eligibility criteria

Smaller businesses from all sectors can apply for the full amount of the facility. To be eligible for a facility under CBILS, a smaller business must:

• Be UK based in its business activity, with turnover of no more than £45m per year.
• Have a borrowing proposal which, were it not for the current pandemic, would be considered viable by the lender.
• Self-certify that it has been adversely impacted by the Coronavirus (COVID-19).

How to apply

CBILS is available through the British Business Bank’s 40+ accredited lenders and partners, which are listed on the British Business Bank website. In the first instance, businesses should approach their own provider, ideally via the lender’s website. They may also consider approaching other lenders if they are unable to access the finance they need. Not every accredited lender can provide every type of finance available under CBILS.