Coronavirus Business Interruption Loan Scheme – Updated
The information and any opinions contained in this summary are for general information purposes only, are not intended to constitute legal or other professional advice and should not be relied on or treated as a substitute for specific advice relevant to particular circumstances.
The Coronavirus Business Interruption Loan Scheme (CBILS) supports small and medium-sized businesses (SMEs) affected by Coronavirus by providing access to loans, overdrafts, invoice finance, and asset finance.
Back in March, when the scheme was announced as part of the Budget 2020, and has been subsequently been reviewed, £330bn was promised in order to prevent businesses from collapsing. But the scheme encountered criticism due to difficulty in accessing it, delays, high-interest rates and the requirement for security to be provided as a personal guarantee. In this article, we look at what is on offer, the response to small business applications, the amendments, and how the banks have reacted.
Type of business and eligibility: Small and medium-sized businesses (SMEs)
You are eligible if:
- Your business is based in the UK
- Your business has an annual turnover of no more than £45 million
- Your business has a borrowing proposal which the lender would consider viable, if not for the coronavirus pandemic
- You can self-certify that your business has been adversely impacted by coronavirus
- Not have been classed as ‘business in difficulty’ on 31 December 2019, if applying to borrow £30,000 or more
There are some businesses that are not eligible to apply, view these here.
What it is: A temporary scheme giving access to loans, overdrafts, invoice finance, and asset finance
Finance available: Up to £5m
Timescale: Up to 6 years for term loans and asset finance and up to 3 years for overdrafts and invoice finance facilities
Benefits: No upfront costs and no interest on payments for the first 12 months
When: The scheme is now open and available from all major banks
What to do: Find a lender, either your own bank or one of over 40 accredited finance providers.
The lender has the authority to decide whether to offer you finance. If one lender turns you down, you can still approach other lenders within the scheme.
When you apply for a business loan, most lenders will ask you for the following:
- Details of the loan including the amount you would like to borrow, what the money is for and the period over which you will make the repayments
- You will need to provide supporting documentation; this will vary from lender to lender but is likely to include: management accounts, cash flow forecast, business plan, historic accounts and details of assets
The British Business Bank has compiled responses to some of the most frequently asked questions from SMEs about CBILS which you can view online by clicking here.
Changes to CBILS
Since the scheme was first introduced a variety of changes have been introduced as initial applicants were finding:
- Onerous eligibility criteria
- Interest rates of up to 30%
- Unreasonable personal guarantee requests
- Interest rates that banks can charge had not been capped by the Treasury
- Banks were steering businesses towards higher interest loans rather than directing them to the Government CBILS product, which is interest-free for 12 months and has no set-up fees.
In early April 2020, in response to the growing concern that lenders had been slow in meeting demands for help, Chancellor Rishi Sunak announced a ban on banks requesting personal guarantees for emergency loans to small businesses. The Chancellor also announced that the loan scheme would be extended to cover all small companies affected by Coronavirus and not just those unable to get commercial funding.
Difficulties with the numbers claiming help and the speed with which the scheme has been implemented
The chairman of The Royal Bank of Scotland (RBS) Sir Howard Davies admits that there have been problems with the scheme but expects to see a sharp rise in the amount of lending to SMEs. He said, “I think we have to accept that the scale of this process and the speed with which it’s been put in place has caused challenges for everybody.”
The changes will help small businesses to access the loans
HSBC has welcomed the changes to the coronavirus loan scheme and apologised for delays in its service. In a statement, the bank said: “HSBC UK is committed to supporting UK businesses through these challenging times, and will continue to launch new measures to alleviate some of the pressures that our customers are facing including preferential rates for those within the ventilator business to help combat the threat of COVID-19. We apologise that it has taken our customers longer than usual to contact us and want to reassure them that we are doing all that we can in these difficult times to get our service levels back to where they were before COVID-19 hit the UK.”
Statement from David Oldfield – Lloyds
David Oldfield, group Director of commercial banking at Lloyds, said: “This is a welcome broadening of the scheme which will mean that many more eligible businesses can benefit from 0% interest on term loans for the first 12 months.”
“We’re pleased too by the announcement of [the coronavirus large business interruption loan scheme], which provides much needed help for larger firms. We will continue to do all that we can to support our clients, large and small, in these difficult times.”
Statement from Dame Carolyn Fairbairn – CBI
Dame Carolyn Fairbairn, Director-General of the Confederation of British Industry (CBI) said: “The Chancellor’s measures are a big step forward. They will help deliver cash faster to firms battling for survival in the headwinds of the pandemic.”
Statement from Mike Cherry – FSB
Mike Cherry, National Chairman of the Federation of Small Businesses (FSB) told the BBC: “It’s a very necessary and timely intervention by the Chancellor, because clearly, businesses were being promised interest-free, fee-free, government support by the banks. Time and time again, the FSB has heard from our members and other small businesses who’ve approached banks seeking these emergency loans that they were being offered anything but.” He added: “This is a national emergency. Business needs cash and it needs cash quickly, so managing to scale this up is important and getting that cash to business is critical.”
Small businesses should apply now even if they have previously been rejected
It’s important to realise that these are loans and that companies taking them out are liable for the debt. They are fee-free and interest-free for the first 12 months. Business owners should be wary that the interest rates that banks can charge have not been capped, although they can borrow at very close to 0%. It’s important that the banks do not try to sell their own products but stick to the Coronavirus Business Interruption Loan Scheme. With the changes, it may be worth applying even if you have previously been rejected for a loan. Also, if you have been rejected from one lender you can still approach another.
What can The Retail Mutual do for your business?
We recognise these are uncertain times for many businesses. As you can appreciate, we have received many enquiries about Coronavirus and we are doing our best to respond to everyone in a timely matter. To help answer some of the recurring questions, we have created a Coronavirus resource hub which contains FAQs, lots of useful Government links and information as well as other useful content that can assist you through this time.