Coronavirus Business Interruption Loan Scheme: the relaunch

Posted: 03/04/2020

This article forms part of our coronavirus resource hub and, in particular, develops on a series of articles relevant to CBILS:

• Coronavirus Business Interruption Loan Scheme: a lifeline for small and medium businesses;
• Coronavirus Business Interruption Loan Scheme: the gates open; and
• The challenges of implementing the Coronavirus Business Interruption Loan Scheme (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.

Recap on CBILS

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:

Commercial terms and security

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.

Personal guarantees

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:

• recovery is capped at a maximum of 20% of the outstanding balance of the CBILS facility after the proceeds of business assets have been applied; and
• a principal private residence cannot be taken as security to support a personal guarantee or as security for a CBILS-backed facility.

These revised requirements are a welcomed movement to CBILS for potential borrowers and reflect ministerial pressure in this area.

Self-certification

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.

Coronavirus Large Business Interruption Loan Scheme

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).

What if a business has signed up under the old CBILS?

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.

How to apply

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:

• management accounts
• cash flow forecast
• business plan
• historic accounts
• details of assets.

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.

Looking to the future

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:

• review the guidance and FAQs maintained by the British Business Bank;
• understand the eligibility requirements and the lender’s scope for assessment – the new CBILS suggests a lender’s internal credit model could be used for smaller loans making the lender selection more critical;
• critically consider which accredited lenders to approach, approaching multiple lenders appears sensible and in particular those lenders who elected to move to some of the more relaxed requirements earlier may provide for an easier borrowing journey (and of course utilising existing lender relationships may promote favourable terms);
• bring together the decision makers of the business now, reviewing constitutional documents for approval requirements and determining the loan required for the business – the amount, term, interest payable (noting the Government covers only the first 12 months interest);
• document the decision making, the considerations of the directors and the decision to use CBILS. In any economic downturn directors find themselves justifying their decisions and how they met their directors’ duties (more information here) – documenting why certain measures were taken forward is a useful collaborative exercise and may help down the line; and
• prepare the evidence in advance - the evidence, as listed above, will be needed for any meaningful director-level discussions on borrowing and these should be available as early as possible for delivery to the lender(s).

The team at Penningtons Manches Cooper is available to help businesses navigate this measure and advise on the preparation of the critical loan agreements

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