How the Government's coronavirus loan scheme for businesses works
06.04.2020 by Dimi V
At the moment, a lot of people are worried about their financial future. The coronavirus has turned the nation upside down. Businesses are closed. We don’t know when they will open again. And, for a lot of business owners, they fear they may never be able to open their doors again due to severe financial pressure. If you fall into this category, the government has announced some measures to help you through this period. One of these measures is the Coronavirus Loan Scheme. Read on to discover everything you need to know about this and how it works.
What is the Coronavirus Loan Scheme?
The Coronavirus Business Interruption Loan Scheme (CBILS) aims to provide monetary support for SMEs across the United Kingdom that have been impacted by the COVID-19 outbreak through the likes of their cashflow being disrupted and revenue being lost. The scheme is one of the measures that the government have implemented in order to help UK employees and companies.
The CBILS can provide facilities of up to £5m for smaller companies across the UK. it supports a wide range of business finance products, including asset finance facilities, term loans, invoice finance, and overdrafts. The scheme went live a couple of weeks ago; on Monday, 23rd March 2020, and it is going to run for six months. However, it may be expanded, depending on the situation.
The eligibility has already been expanded
The CBILS has been expanded considerably so that smaller businesses across the United Kingdom are able to benefit. One of the changes that have been made is that insufficient security is now no longer a condition in terms of access to the scheme. Previously, smaller companies may have met the requirements for a commercial facility yet may not have been eligible for CBILS because of this. Businesses were struggling to provide the level of assets that were needed in order to meet the threshold of the lenders. However, responding to the desperate call for more aid, the scheme was expanded. This will be operational with lenders from Monday 6th April; meaning the number of companies eligible has expanded considerably.
There are a number of other notable changes that have been made since the scheme was first announced. This includes the fact that lenders are only able to recover 20 per cent, at most, of the outstanding loan balance from personal assets that have been used to secure the loan. The lender first needs to recover debts from any assets of the business, and then they can look to the personal assets that the business directors or owners listed as security. Nevertheless, the principal private residence cannot be included in this. If you feel that you were rejected because of any of these factors, it is certainly worth getting in touch with lenders again, as you may find that they are going to be more willing to assist you now.
How does the Coronavirus Business Interruption Loan Scheme work?
There are currently more than 40 accredited lenders that are working with the British Business Bank in order to provide finance. This includes smaller specialist local lenders, asset-based lenders, challenger banks, and high-street banks.
A lender is able to provide up to £5 million in the form of asset finance, invoice finance, overdrafts, and term loans. To encourage more lending, the lender will have a government-backed guarantee for the loan repayments. However, you - the borrower - is going to remain fully liable for the debt.
Under the scheme, personal guarantees of any nature are not going to be taken for facilities less than £250,000. Personal guarantees may be needed for facilities of over £250,000. However, this is left to the lender to determine.
The key features of this scheme
So, let’s take a look at the key features of this scheme…
- Finance of up to £5 million - The highest value of monetary aid offered as part of this scheme is £5 million, available on repayment terms of up to six years.
- The government will pay fees and interest for 12 months - The Government is going to make a Business Interruption Payment that will cover the first year’s worth of any lender-levied charges and interest payments.
- Guarantee to the lender to encourage them to lend - A government-backed, partial guarantee has been provided against the outstanding balance of the finance in order to encourage lenders to lend. Nevertheless, the borrow is still 100 per cent liable for any debt.
Who is eligible for CBILS?
Before you go ahead and make an application, you will want to make sure that you are eligible. Your business must…
- Self-certify that it has been adversely impacted due to COVID-19.
- Have a borrowing proposal that the lender deems viable if it were not for the current climate.
- Have a yearly turnover that does not exceed £45 million.
- Be based in the United Kingdom in its business activity.
You will not be able to make an application for lending if you operate in any of the following sectors…
- State-funded secondary schools and primary schools
- Further-education establishments that are grant-funded
- Public sector bodies
- Banks, insurers, and reinsurers (but not insurance brokers)
If you are a freelancer or sole trader, you may be wondering whether or not you are going to be eligible for this scheme. You are, so long as your business activity is operated through a business account. In fact, CBILS is open to…
- Limited liability partnerships
- Limited partnerships
- Body corporates
- Sole traders
- And any other type of legal entity that carries out business activity in the United Kingdom.
In order to be eligible for this scheme, your company needs to generate over 50 per cent of its turnover via trading activity.
Can I take out a loan and still benefit from other kinds of help in response to COVID-19?
Yes, you are still going to be able to take out a loan should you be getting other forms of help. However, it is important to note that certain payments that you get may count towards the amount of Business Interruption Payment (BIP) you may be entitled to. This refers to the payments the government in the UK is going to make in order to cover the fees and interest on your loan.
Can I still get a loan if I have had de minimis aid in the past?
CBILS is operating as a notified scheme instead of being under de minimis. Your eligibility for CBILS does not take into account any prior de minimis state aid. The lender does not need to take this into consideration.
Will it cost anything in order to access this scheme?
No. There are not any upfront costs are fees that are required in order to access the loan scheme. For the first 12 months, the government will pay any costs that the lender has levied and interest payments. After this, it is going to be your responsibility.
How to apply for CBILS
So, how do you make an application for the Coronavirus Business Interruption Loan Scheme? Well, the first thing that you need to do is choose a CBILS accredited lender. You can find the full list of approved lenders and partners here. It includes the likes of Barclays, Danske Bank, TSB, Lloyds Bank, Hitachi Capital UK PLC, Haydock Finance, Ulster Bank, SWIG Finance, Robert Owen Community Banking, and a number of others.
Once you have determined the lender you would like to approach, head to their website, where you should find details on how to get in touch. Please note that phone lines are going to be busy at the moment, so do be prepared to wait. The finance offered does differ from lender to lender. This is why you need to make sure you check their website so that you can determine how much they lend. Plus, not every accredited lender is going to be able to supply every type of finance available under CBILS. So, assess all of the options and find the lender that is most suitable for you.
It is then up to the lender to make the decision on whether or not they should offer you finance. As mentioned, for amounts below £250,000 personal guarantees are not going to be taken. They may be required, at the lender’s discretion, for amounts above £250,000. However, recoveries have been capped at no more than 20 per cent of the outstanding balance once the proceeds of company assets have been applied, and they do not include the Principal Private Residence (PPR).
If the lender does turn you down, you can approach other lenders within the scheme. You can approach all of them if you need to. Smaller businesses that now have cashflow difficulties can also make use of the scheme as well, and so you may want to think about getting back in touch with your lender if you have previously been unsuccessful with your application.
What will the lender expect from you?
It is important to have all of the information you need ready so that you do not slow down the process. So, what is the lender going to want from you?
- Details of the loan - The lender is going to want to know how much money you would like to borrow. They are also going to want to know what you intend to use the money for. They will want to make sure that the money is going to be used for a suitable business purpose and that the finance is right for your needs. They will also want to know how long you need in order to make the repayments, as they will want to determine whether or not the loan is going to be affordable for you.
- Supporting documents - You are going to need to supply the lender with evidence to show that the loan is affordable for you. This is likely to include details of any assets, historic accounts, your business plan, cash flow forecast, and your management accounts.
It is important to know that the requirements are going to vary from lender to lender. Nevertheless, this should give you a general understanding of what is going to be needed from you if you are going to make a loan application under this scheme.
Huge demand for loans in the current climate
It seems that many businesses have already made applications and are attempting to access this scheme, which probably does not come as any surprise. The marketplace for business finance, Funding Options, received a record £1 billion worth of loan applications from companies last month due to the cash flow crisis that looms because of the coronavirus.
Interestingly, the research also showed that over 10,000 companies in the UK had applied for loans that sit outside of the Coronavirus Business Interruption Loan Scheme that has been introduced, indicating that a lot of businesses simply were not able to wait for the loans that were being guaranteed by the government. Of course, it could also be that they were not eligible or that they made an application and it was rejected. It is definitely advisable to try the loan scheme offered by the government first and foremost if you are able to. After all, the terms are going to be a lot more favourable and you’re not going to have to deal with any interest fees or payments for another 12 months, which is not going to be the case if you go for a different type of loan.
So there you have it: everything that you need to know about the government’s Coronavirus Business Interruption Loan Scheme. We know that it can seem overwhelming and confusing, however, we hope that this information has helped to clear it up so that you can understand whether or not you are eligible for the scheme and how you can go about making an application.