This article forms part of our coronavirus resource hub and, in particular, develops on a series of articles relevant to CBILS:
On 2 April 2020 the revamped and expanded Coronavirus Business Interruption Loan Scheme (CBILS) was announced. The new CBILS promises to remedy the perceived inadequacies of the previous versions and, crucially, looks to achieve what the Government intended: provide financial support to businesses suffering with cashflow disruption.
CBILS allows businesses to access a finance facility of up to £5 million from certain lenders on repayment terms of up to six years, depending on the type of finance. The Government will provide the lenders with guarantees of 80% on every loan, subject to an overall cap for each lender, but the borrower remains 100% liable for the debt. There will be no guarantee fee charged to businesses and they will not pay lender-levied fees or interest for 12 months. Please refer to available guidance for further information.
The expanded CBILS has changed in several key respects:
Previously, if the business could be offered lending on standard commercial terms then the business was ineligible under CBILS. This eligibility requirement was allegedly used by some lenders to refuse CBILS lending and instead only offer on the lenders’ standard commercial terms, which included high interest rate payments and other more onerous obligations compared to CBILS. However, the new CBILS can be utilised irrespective of whether the business could be offered standard commercial terms.
The old CBILS required that the business must have insufficient collateral to offer towards the loan. Lenders frequently interpreted this as meaning that owners with available assets must offer a personal guarantee under the loan at considerable risk to the individuals. We previously reported on the need to revisit the lack of collateral requirement and pleasingly the new CBILS has clarified that insufficient security is no longer a condition to access.
Under the new CBILS a personal guarantee will not be taken for facilities below £250,000. For facilities over £250,000, lenders still may require personal guarantees but these will be limited in two ways:
These revised requirements are a welcomed movement to CBILS for potential borrowers and reflect ministerial pressure in this area.
In addition to the eligibility requirements set out in our previous article, businesses will now need to self-certify that there has been an adverse impact by Covid-19. This would appear a tick box exercise but, needless to say, businesses not adversely impacted must not attempt to utilise CBILS.
The Coronavirus Large Business Interruption Loan Scheme (CLBILS), not to be confused with CBILS, is the latest addition to the family of measures available to support businesses. Although not directly relevant to this article, CLBILS will involve a Government guarantee of 80% to enable banks to make loans of up to £25 million to firms with an annual turnover of £45 to £500 million. Loans backed under CLBILS will be at commercial rates of interest. Guidance suggests further details of the scheme will be announced later on this month (April).
Guidance explains that all changes outlined above will be applied retrospectively for all CBILS facilities offered since 23 March 2020. In addition, for any commercial facilities (outside CBILS) offered since the same date, accredited lenders have been asked to bring the facilities onto CBILS if the borrower meets the eligibility requirements.
The expanded CBILS will become operational on 6 April 2020. To trigger the process, a business must approach a lender (preferably through its website) to discuss a facility under CBILS. The latest guidance advises businesses to prepare details of the loan (amount, purpose and period for repayment) and begin to prepare the evidence likely required by a lender such as:
It is no easy feat to bring together the above in these unprecedented times. Businesses are faced with reduced staff through the furlough scheme, navigating premises closures and remote working challenges. However, the benefits to preparing a sound and comprehensive proposal with strong supporting documents could be business-saving.
As at 2 April 2020, CBILS has backed 1,000 facilities valued at £90.5 million, a relatively small sum from the 130,000 loan enquiries received. Considering the expansion of the CBILS, we expect the floodgates may open and, in particular, businesses previously deemed ineligible may lead the charge.
The revised requirements and clarification are, without doubt, necessary for the success of CBILS and we shall see how businesses and lenders interpret the new parameters. In the interim, we recommend businesses considering CBILS to:
The team at Penningtons Manches Cooper is available to help businesses navigate this measure and advise on the preparation of the critical loan agreements