Updated: Following the escalation of coronavirus in the UK, the government announced a new £330bn loan scheme to support small businesses a few weeks ago.
While coined ‘new’, the Coronavirus Business Interruption Loan Scheme (CBILS) is in fact temporarily replacing the Enterprise Finance Guarantee.
The two schemes are similar, but the CBILS promised more attractive terms for both businesses and lenders.
The scheme went live on 23 March 2020, but despite an understandable high demand, it has yet to deliver the level of funding promised by the government (only a 1,000 firms have borrowed from the scheme despite 130,000 applications).
In response to staunch criticism, chancellor Rishi Sunak announced an overhaul of the scheme this week. We’ve updated the article below to reflect the changes, but the key amends are as follows:
- You no longer need to be disqualified from commercial lending to access the scheme
- Lenders are not allowed to ask for personal guarantees for loans of under £250,000, some of the high-street lenders had already publicly pledged to do this but it is now compulsory across the scheme
- An additional loan scheme has been announced for large businesses (the Coronavirus Large Business Interruption Loan Scheme)
How will the Coronavirus Business Interruption Loan Scheme work?
Like its predecessor the Enterprise Finance Guarantee, the new CBILS will be delivered via the British Business Bank and through providers that were previously accredited to deliver facilities under the old scheme.
The government will provide a guarantee for lenders of up to 80% of each loan (subject to an annual per-lender cap on overall loans) to enable them to fund small businesses that would otherwise have insufficient security to meet the lender’s normal requirements.
It’s worth noting that while the government is providing a guarantee to the lender, businesses still remain liable for 100% of the debt.
There are no fees for businesses or lenders for participating in the scheme and businesses will benefit from lower initial repayments as the government will cover any loan interest for the first 12 months (although you will still remain liable for the capital payments).
The range of finance options include asset finance (raising money against your existing assets), invoice finance (raising money against outstanding invoices), term loans (traditional business loans with fixed repayments) and overdraft variants (like personal overdrafts but for business).
When will the CBILS be up and running?
The scheme launched officially on the 23 March 2020. It has since been subject to an overhaul already. Changes to the scheme were announced on 3 April 2020.
Who is eligible for the loan?
The criteria has been listed as follows:
- Small businesses must be UK-based and have a turnover of no more than £45m a year. (A new scheme has been announced to support larger businesses with turnover of £45m-£500m. More details of the Coronavirus Large Business Interruption Loan Scheme will be announced shortly).
- You must operate within an eligible sector (a small number of industrial sectors are not eligible for support, full information on this can be viewed here.)
- You no longer need to have inadequate security to meet a lender’s normal requirements – but you must still have a sound borrowing proposal and certify that your business has been adversely impacted by the coronavirus.
- You must be able to confirm that you have not received other public money given in the form of a grant beyond €200,000 equivalent over the previous three years.
How much can I borrow?
The amount you can borrow under the scheme will range from £1,000 to £5m (this was extended from the £1.2m announced in the Budget). For term loans and asset finance, the finance terms will vary from three months to up to 10 years and the revolving facilities will be available for up to three years.
However, whilst the upper limit for the CBILS is £5m, individual lenders continue to be restricted by their maximum lending policy. Some lenders will be able to offer the full £5m, whilst others will be more limited. Speak to individual lenders or contact our team at Fluidly to discuss the available options.
The Coronavirus Large Business Interruption Loan Scheme (CLBILS) will be able to lend up to £25m.
How do I apply for the CBILS?
For a business, the process is very similar to a normal funding application. You still apply directly with a lender, or multiple lenders, and they will assess whether they can finance you.
Initially, the scheme allowed lenders to offer normal commercial terms in the first instance, but now finance providers can support lending even where a lender deems a business to have sufficient security for a normal commercial loan.
Decision-making on eligibility lies with the individual lenders.
Can I apply through multiple lenders?
As stated above, you can apply through multiple lenders. You don’t need to go with your main bank, there are over 40 lenders participating in the scheme. You can also apply for mutiple CBILS loans if you own multiple companies.
Will I need to provide a personal guarantee?
For loans under £250,000, lenders across the scheme are no longer allowed to ask for personal guarantees. For businesses borrowing more than £250,000 through CBILS, personal guarantees will be capped at 20% of the outstanding loans balance.
Previously, there were reports of banks asking directors to put their homes or savings up as collateral, and charging interest rates of up to 30% after the initial interest-free period.
Which lenders are offering the scheme?
There are over 40 accredited (and predominantly ‘traditional’) lenders currently participating in the scheme, but the government is considering adding additional lenders.
At Fluidly, we are working with a number of CBILS lenders, you can find out more about our smart, fast, hassle-free funding here.
What’s the difference between the Enterprise Finance Guarantee and the CBILS?
The original Enterprise Finance Guarantee scheme only allowed the lender a government-backed guarantee of up to 75%, under the CBILS it will be 80%.
The max limit on an EFG loan was £1m, the CBILS has increased this to £5m.
Small businesses supported by the EFG were required to pay a 2% annual fee to the government as a contribution towards the cost of the scheme. The new CBILS has no fees for lenders or businesses.
Could the money in the scheme run out?
Chancellor Rishi Sunak has promised that if demand exceeds the initial £330bn, he will extend the amount further to provide as much capacity as required.
So far, only 91m has actually been lent through the scheme so there is still a considerable amount of capital left to borrow.
When will I have to pay the money back?
The finance terms will depend on each lender, and the product type.
Can I apply for the scheme if my business is loss-making?
Lenders will want your business to demonstrate that it was viable prior to the coronavirus outbreak – and in a lot of cases this will mean showing profitability. If you’re currently loss-making you may still be eligible, but you would need to be able to show a level of certainty of future profitability.
Where can you find out more information?
There’s lots of information on The British Business Bank website. Alternatively you can contact individual lenders.
We’ll also be updating this guide as and when more information becomes available.