Everything You Need to Know About the CBILS Loan Scheme

Entire economies have been affected by the outbreak of the coronavirus (Covid-19) pandemic. Many businesses and industries (hospitality for example) have had to halt business activities completely. Only a few still operate minimally.

The situation is so dire the government has had to step in to help and support the worse hit businesses – small businesses – especially those which do not have the balance sheets needed to weather the storm.

To support these businesses the government has launched the CBILS (Coronavirus Business Interruption Loan Scheme) operated by the British Business Bank.

Through this loan scheme, the government is making £1.2 billion available to support lending to qualified small businesses. This is especially necessary seeing that 60% of the private sector workforce, or about 13 million people, are employed by the 5.7 million small and medium-sized businesses in the U.K.

Due to how urgent demand for funding is, an existing framework has had to be re-purposed to establish the CBILS. This framework, the well-established Enterprise Finance Guarantee (EFG) Scheme, already has a range of qualifying products being offered by a network of accredited lenders.

This doesn’t mean it was an easy task for the government and the team at British Business Bank which had to work tirelessly for the establishment of the CBILS.

Like all loans, this may or may not be right for your business. But instead of worrying about what you may have no control over, you need to generally work out what all your options for financing are, if CBILS is applicable for you, and which loans and their application processes will be the quickest for you.

 

What is the British Business Bank and its function?

The British Business Bank provides equity capital to venture capital funds, as well as debt. It is not a traditionally regulated bank that can be approached for a loan. It has several objectives mostly centred on ensuring the finance markets work better for small businesses. These include:

• Ensuring that the available sources of equity and debt finance are diversified.
• Reducing the imbalance that small businesses have regarding accessing finance in the UK.
• Supporting small businesses to get the finance options best suited to their needs. And
• Helping small businesses understand the available finance options.

The bank scrutinises and chooses accredited ‘delivery partners’ to whom it makes capital available. These partners then invest in or lend to small businesses. Furthermore, capital is made available through venture capital funds, angel co-investment funds, cash advance lenders, independent asset finance, venture debt funds, new ‘challenger banks’, peer-to-peer lenders such as Funding Circle, high street bank financial products such as term loans, asset financing, overdrafts, and many more.

The Startup Loan Scheme is an example government-backed financial product operated by the British Business Bank. Through this scheme, entrepreneurs who wouldn’t have been able to raise the needed capital for their startups can do so. The scheme provides up to £25,000 in personal loans to be used in starting a business and, since 2012, has provided over 69,500 UK businesses with about £566 million.

 

CBILS and the EFG scheme

As earlier stated, the CBILS is based on and leverages the existing legal framework, accredited lender network and processes of the Enterprise Finance Guarantee (EFG) scheme.

After the 2008 credit crunch, when small businesses could not access loans because loan finance for small businesses had dried up, the government established the EFG to provide lenders with a partial guarantee to reduce the risks of banks making loans available to small businesses which couldn’t provide security or the market didn’t deem creditworthy. The scheme has provided over 35,000 small businesses with more than £3.3 billion.

Under the EFG scheme, which the CBILS is now replacing, lenders were provided with a government-backed guarantee of up to 75%, against the facility balance. That was usually enough to have a lender agree to lend a small business the required loan.

 

How to apply for the CBILS loan

If you are a small business owner, sole-trader, or freelancer currently facing financial difficulty in your business and seeking a loan, the CBILS may be right for you. Of, course, the funding process, paperwork, interest rates, repayment dates, fees, securities, personal guarantee requests, the impact of short-term cash-flow that’s worsening and a host of others can become overwhelming and be of concern.

With the 40+ CBILS lenders accredited by the British Business Bank, you’re likely to get the help you need. The scheme is designed to minimize the risk for both lenders and small businesses as far as is possible.

To work out if the CBILS applies to you and also how to apply, the information you need can be gotten online or at your bank. Your bank may not be an accredited lender. If it is not, you can suggest it contacts the British Business Bank and apply.

A few things to note: The CBILS is not a veiled hand-out or grant and cannot be used to refinance an existing commercial loan. It’s a loan and you must show that you can support the loan, despite the CBILS protection. Also, you, the borrower, are still responsible for and 100% liable for the debt and the CBILS does need a loan application.

There’s also the chance that startups and very early-stage businesses that have limited trading will not qualify. This is because while the government ensured the risks are reduced for both small business and lenders, each lender has its established lending criteria. The objective of the loan isn’t the facilitation of loans with little to no chance of being paid back so if the lenders can finance on the commercial terms they normally do, they will.

You can get all the details you need to understand the CBILS features on the British Business Bank CBILS pages, but here’s a short version:

• For loans of up to £250,000, securities can be used. For loans larger than £250,000 the lender has to demonstrate an absence or lack of security.
• The UK government will pay the interest and lender-levied fees for 12 months.
• There’s an 80% guarantee of outstanding loan (for lenders)
• SMEs do not pay any fees but lenders do. They pay a small fee.
• Loans can be up to £5 million with a six years term.
• The terms of the loans are six years for asset finance and term loans and three years for invoice discounting and overdrafts.
• The borrower remains 100% responsible for the outstanding balance on the loans.
• Lenders cannot request that borrowers make use of their primary residential properties as security for the loans under the CBILS.

Eligibility criteria for the loan are as below but you can get the full details of the CBILS eligibility criteria here. In summary:

• The business must be based in the UK and have an annual turnover of less than £45 million.
• The business must be one that operates within an eligible industrial sector. (a few sectors do not qualify but many others do.)
• The business must have a strong borrowing proposal which will hold ground and which lenders would consider as viable if it weren’t for the COVID-19 pandemic. The lender also has to believe that providing finance will help the business trade out of a short-to-medium term loan.

It should be noted that receiving state aid has no impact on eligibility.

 

How long will it take to get a CBILS loan?

How long it will take to obtain a loan will vary based on lenders as every lender has its application criteria and process. But these lenders are aware of the fact that businesses need funding as fast as can be. They also know that the CBILS presents them an opportunity to disburse capital and earn a return so they wouldn’t want to jeopardise it.

It should be noted that the CBILS is not meant for any and every business facing some financially difficult times. CBILS make it possible for small businesses to access the capital they need throughout the UK, but like all loans, they still carry some risks which can easily add up – the 20% the UK government doesn’t guarantee. You also have to demonstrate that you can stabilise your business and pay back the loan after the COVID-19 outbreak.

The list of accredited lenders can be viewed here. To get detailed information and the contact details of each lender, click on the lender.

 

Get free advice today

If your business is struggling it’s important to seek professional advice, so why not contact us today and take advantage of a free consultation with one of our business recovery specialists. You can call us on 0800 975 0380 (free form mobiles and landlines) or email [email protected]

We will be able to assess the situation and then offer advice on appropriate solutions depending on your specific situation and requirements. You can then decide whether you want us to help you with your problems. With offices across the UK, you’re never far away from expert and confidential advice.