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Coronavirus Business Interruption Loan Scheme: a lifeline for small and medium sized businesses

Posted: 19/03/2020

On 17 March 2020 the Chancellor unveiled an “unprecedented package” of measures designed to combat the disruption caused by coronavirus (Covid-19), developing on the proposals featured in the budget.

The measures (usefully listed in the latest guidance available here) include statutory sick pay relief packages, business rate holidays and small business grants. They could offer immediate relief to companies in difficulties but, if the models and predictions prove accurate, businesses must look to secure their long-term viability as cash flow pressures may only increase.

What longer term measures could possibly shine a light through the seemingly inescapable pandemic? Enter the Coronavirus Business Interruption Loan Scheme (CBILS).

What is CBILS?

Expected to be available next week (w/c 23 March), CBILS is delivered by the British Business Bank (BBB) and allows businesses to access finance from certain lenders. The Government will provide the lenders with guarantees of 80% on every loan (subject to some limitations on claims from each lender).

There will be no charge to businesses or lenders for the guarantee and CBILS will support loans of up to £5 million, which is an increase on the original announcement by the Chancellor of loans up to £1.2 million. A business under CBILS will not pay interest for six months, which will instead be covered by the Government (further information on CBILS is available here).

What are the criteria?

The current guidance states a business must:

  • be UK based, with turnover of no more than £41 million per annum;
  • operate within an eligible industrial sector (there is a list available using the link above);
  • be able to confirm that they have not received de minimis state aid beyond €200,000 equivalent over the current and previous two fiscal years; and
  • have a sound borrowing proposal, but insufficient security to meet the lender’s requirements.

How might these criteria be applied?

Naturally, the Government has not set the above criteria in stone and we fully expect more comprehensive guidance or a checklist of requirements to be confirmed next week. However, it might be reasonable to expect CBILS will mirror the existing Enterprise Finance Guarantee (EFG), also supported by BBB. Further information on the EFG is available here including a useful guidance document, which may well be the foundation for how CBILS will operate.

How will it work in practice?

A business is to approach an accredited lender with their borrowing proposal who will then determine whether finance can be offered on standard commercial terms. If not (and provided the eligibility factors are met) the lender will consider CBILS.

What can a business do now?

Businesses considering CBILS should familiarise themselves with the EFG and prepare proposals ready for the release of CBILS next week. They may want to consider their constitution and borrowing powers and prepare to hold appropriate board meetings to determine what terms the business needs are and, importantly, set out a “sound proposal” in readiness.

Businesses should identify which lenders may offer terms that are more advantageous and whether any existing facilities may springboard negotiations. It is inevitable that there will be borrowing shopping on a large scale as organisations eagerly look to secure the (in the words of the Chancellor) “attractive terms” under CBILS.

It will be important that, as finance negotiations pick up speed, legal advisors are on hand to ensure the interests of the business are secured and not prejudiced by the arguable urgency of the arrangement. Making certain positions are protected whilst releasing business-saving funds will require a careful balance and the team at Penningtons Manches Cooper is available to facilitate this.

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