As announced in the 2020 Budget, HM Treasury together with the British Business Bank (BBB) have introduced a financial package for SMEs to ease cash-flow disruption caused by COVID-19. The BBB has stated applications can now be made to Providers from 23 March.
On 2 April, the Chancellor announced further action to bolster the CBILS for SMEs after HM Treasury reported that of 130,000 applications, only 1,000 loans (for c. £90m) had been made.
Our below analysis of CBILS includes the changes announced and will be updated as further details are released. The key changes to CBILS are:
- Extending CBILS so that all viable small businesses affected by COVID-19 and need finance to operate during the crisis, and not just those unable to secure regular commercial financing, will now be eligible.
- Lenders can no longer request personal guarantees for loans under £250,000.
- For loans over £250,000, personal guarantees will be limited to just 20% of any amount outstanding on the CBILS lending after any other recoveries from business assets.
- The changes to the personal guarantee requirements will also be extended to CBILS finance already offered under the scheme.
- The Government reconfirms it will continue to cover the first twelve months of interest and fees.
Those businesses that have been refused CBILS (particularly if the reason is that they satisfied normal commercial lending terms), or have rejected the CBILS because of the request for personal guarantees, should now look at revisiting their application.
To access CBILS, the BBB recommends that businesses approach their own lender (if one of the designated Providers), preferably via the Provider’s website.
Also on 2 April a new scheme for larger businesses was announced, the Coronavirus Large Business Interruption Loan Scheme (CLBILS).
The CLBILS is in addition to the COVID-19 Corporate Financing Facility (CCFF) for larger businesses that was launched by the Bank of England on 23 March. The CCFF requires the borrower to issue Commercial Paper and is, therefore, only really suitable for very large businesses or listed entities. Further details on that facility can be found here.
The BBB has also produced a useful CBILS FAQ – see here. We expect this to be updated following yesterday’s (2 April) announcements.
CLBILS – Summary
Further details of CLBILS will be issued later this month (April). While the announcement headlines referred to “larger companies”, the details of the announcement regularly refers to “firms” and “businesses”. We therefore believe that this new scheme is available to businesses and not restricted to companies.
The following details were announced:
- The scheme will be available to businesses with an annual turnover of between £45 million and £500 million.
- Banks to provide loans of up to £25 million with the Government providing a guarantee of 80%, thereby giving the banks confidence to lend.
- Available to businesses which are impacted by COVID-19 but that the Providers would not lend to without CLBILS.
- Loans under CLBILS will be offered at commercial rates of interest.
We will update this article as further details become available.
CBILS – Types of finance
In addition to loans, other types of finance are supported by the programme, including (but depending upon the Provider):
- Term facilities
- Invoice finance facilities
- Asset finance facilities
Over 40 lenders have agreed to be a Provider. A list of Providers can be found here.
A Provider can use CBILS to help a business access loans from £1,000 to £5 million (per business borrower). Finance terms are up to six years for term loans and asset finance and up to three years for overdraft facilities and invoice finance.
The Government will also pay for the first 12 months of interest payments (this was reconfirmed on 2 April). The business remains liable for repayments of the capital.
CBILS may be used for unsecured lending for facilities of £250,000 and under (at the discretion of the Provider). For facilities above £250,000, the Provider must establish a lack or absence of security prior to businesses using CBILS. From 2 April, all viable businesses are eligible and not just those that cannot satisfy the Providers normal commercial terms.
For loans up to £250,000, the Provider cannot request personal guarantees. For loans over £250,000, personal guarantees will be limited to just 20% of any amount outstanding on the CBILS lending after any other recoveries from business assets. Prior to these changes it was understood that Providers were prohibited from asking business owners to use their home as security.
The changes to the personal guarantee requirements will also be extended to CBILS finance already offered under the scheme.
How does it work?
It will operate in a similar way to the Enterprise Finance Guarantee (EFG), but will offer more attractive terms for both businesses and lenders.
As part of the 2 April CBILS bolster announcements, operational changes will be made to speed up lending approvals.
Businesses should first make an approach to one or more of the Providers with their borrowing proposal. The BBB strongly recommends businesses to approach their current lender (if they are a Provider) first via its online application, however at the time of writing none of the major banks have released an online application system.
CBILS provides the Provider with a government-backed 80% guarantee against the outstanding facility balance, potentially enabling a ‘yes’ credit decision. A key aspect to being eligible for support via the CBILS is that the business has a borrowing proposal which, were it not for the current pandemic, would be considered viable by the Provider, and for which the Provider believes the provision of finance will enable the business to trade out of any short to medium term difficulty.
Applications should be tailored to demonstrate the requirement that emergency short to medium term funding is needed as a result of COVID-19. It also seems where the SME has a sound borrowing proposal but insufficient security, the Provider will consider them for support via CBILS. Following the 2 April announcements, the CBILS should also be available even if the Provider was otherwise willing to offer finance on normal commercial terms. Decision-making on whether a small business is eligible for CBILS is fully delegated to the Provider.
The borrower always remains 100% liable for the debt.
To qualify, the SME must:
- Be UK-based in its business activity, with annual turnover of no more than £45 million.
- The scheme is open to sole traders, freelancers, body corporates, limited partnerships, limited liability partnerships or other legal entity carry out a business activity in the UK. The business must generate more than 50% of its turnover from trading activities.
- Operate within an eligible industrial sector (a small number of industrial sectors are not eligible for support – see here for a list of sectors).
- Have a borrowing proposal which, were it not for the current pandemic, would be considered viable by the lender, and for which the lender believes the provision of finance will enable the business to trade out of any short to medium term difficulty.
- Be unable to meet a Provider’s normal lending requirements for a fully commercial debt facility.
Previous eligibility criteria included confirmation that the business did not receive de minimis state aid beyond €200,000. Based on details published by the BBB on 23 March this requirement has been removed altogether, a welcome change.
How can haysmacintyre assist?
We are considering how businesses can prepare for their application and we are reaching out to our banking contacts to provider further insight on the application process.
One of the criteria for eligibility is that the business must have a borrowing proposal which, were it not for the COVID-19 pandemic, would be considered viable by the lender, and for which the lender believes the provision of finance will enable the business to trade out of any short to medium term difficulty.
Below is a list of questions and information that businesses are likely to have to respond to and provide.
- What type of finance facility is most suitable for the business (term loan, asset finance, invoice finance, overdraft)?
- How much does the business need to borrow and over what time period? Finance of up to £250,000 is more likely to be readily available.
- A full set of the business’ last financial accounts.
- Latest management accounts that were prepared before COVID-19 (‘pre-CV19’).
- Budgets and forecasts that were prepared pre-CV19.
- Revised cash and financial forecasts showing the expected impact of COVID-19.
- A comparison schedule that summarises 4, 5 and 6 to better visualise the impact of COVID-19. Providing commentary on variances is likely to be very useful.
- Aged debtor and creditor listings.
- What business actions has the business implemented (or will soon implement) to reduce the cash outflow of the Business (i.e. has the business sought deferral of taxes under Time to Pay arrangements with HMRC?)?
- Was the business profitable/cash generative before the impact of COVID-19?
- Does the businesses pre-CV19 finances suggest that the business would be sufficiently cash generative to finance additional lending?
- If the business was loss making pre-CV19, did budgets/forecasts show improving profitability or a future break-even point?
- What are the key assumptions in each of your budgets/forecasts (pre and post CV19)?
- Does the business have any security available (property, valuable equipment, amounts receivable)?
- On what areas will the CBILS Loan monies be spent and likely timelines?
- In light of COVID-19, has the business reviewed its trade debtors? What steps have been made to collect debts?
- How has the revenue/turnover of the business been affected by COVID-19? i.e.
- Customer market affected leading to decreased sales
- Production capability has decreased due to infected workforce and/or office/factory/site closures
- Other reasons
- Can your business adequately function remotely?
Current insights from clients and banking contacts:
- Banks are overwhelmed with customer requests and therefore any non-banked/new business requests are being ‘parked’ for the foreseeable future.
- All requests will be considered on an individual basis and remain subject to the qualifying criteria.
- There is still confusion on who qualifies and how the CBILS will operate in practice.
- What does the 80% government-backed guarantee actually look like?
- Providers are “working as fast as they can to get on top of it”.
- One client was told that they aren’t eligible as they have too much security…
Clearly there remains a lot of work and clarification needed to effectively launch the scheme by providers and hopefully that clarity will come very soon.
If you wish to discuss the CBILS and/or any other COVID-19 related initiatives please contact your usual haysmacintyre contact or email CV19@haysmacintyre.com.