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The COVID-19 pandemic is having an overwhelming effect on UK businesses of all sizes in most sectors. Given the considerable impact of a country coming to a virtual standstill, the Government recognises that more needs to be done to support companies struggling to support themselves.
As at 3 April 2020, around 1,000 companies have accessed additional financing under the CBILS, whereas the number of businesses that are furloughing staff under the Coronavirus Job Retention Scheme is in the tens of thousands. This difference in uptake between the two schemes suggests the CBILS is not functioning quickly enough to get monies to businesses in need.
The initial guidance from the British Business Bank (administering the CBILS) was that participating lenders should first determine whether applicants could qualify for lending under normal commercial terms, and only if they did not qualify would they be offered financing under the CBILS.
This had the effect of discouraging some businesses, concerned that they may not be able to service interest payments in the coming months. In addition, some companies trying to access the scheme had been put off by their lenders' requirement for a personal guarantee to be given in support of the financing.
In response, the Chancellor has removed the requirement for lenders to offer commercial terms first, so that all viable small businesses affected by COVID-19 (not just those unable to secure regular commercial financing) will now be eligible for the preferential terms offered under the CBILS (i.e. Government support for interest and fees for 12 months – the "Business Interruption Payment"). Further, it is now prohibited for lenders to require personal guarantees for lending of up to £250,000 under the CBILS. Facilities above £250,000 may need to be supported by personal guarantees at the bank's discretion (excluding a principal private residence), but such guarantees are limited to 20% of any outstanding amount after any recovery from other security over the business' assets.
The CBILS supports lending up to £5 million by overdraft, invoice and asset finance and term loans, with lending periods of up to six years for term loans and asset finance and up to three years for revolving facilities and invoice finance. Full eligibility is determined by the lender in question, but quick eligibility criteria are as follows:
The Government (through the British Business Bank) will guarantee 80% of lenders' exposure under loans made under the CBILS (once business assets and any personal guarantees (if required) have been applied), the idea being that this will give lenders sufficient comfort to make quick credit decisions.
Following the concerns of the "Stranded Middle" (businesses too large to access the CBILS and unable to issue commercial paper) set out in our article on 27 March 2020, new measures have been announced to assist businesses falling into this group. The CLBILS is set to provide access to loans of up to £25 million to firms with an annual turnover of between £45 million and £500 million. Like the CBILS, the Government will guarantee 80% of the lenders' exposure, but there will not be a Business Interruption Payment, so interest and fees will be payable on normal commercial terms.
The government has set out some initial information in this announcement and we understand further details of this scheme will be announced later this month.
For all businesses with existing banking facilities alongside seeking a CBILS loan or CLBIL loan, a conversation with your funder about repayment and/or interest payment holidays can have a positive impact on your cashflow.
We will be watching as the details unfold and will provide updated guidance as soon as we can.
If you have any questions on the above content or COVID-19 more generally, do get in touch.
