Coronavirus Business Interruption Loans (CBILs)
And the newly announced BOUNCE BACK LOAN.
We at RS Partnership wanted to talk to you about CBILs generally, but also specifically how they can help you, now and in the future, because of the possibility of the extreme circumstances we are currently experiencing lasting a lot longer than we think. What if there is no change in the economy in the run up to Christmas. We obviously hope things will improve, but who would be willing to ‘put their house on’ the fact that they won’t be?
The big picture…
The purpose of CBILs is to provide financial support to smaller businesses (SMEs). Across the UK businesses are losing revenue, and seeing their cashflow disrupted, as a result of the COVID-19 outbreak.
CBILs are a recognition that we are in unprecedented circumstances and so normal lending conditions, such as needing full security, are no longer necessarily on point.
See this link for more background to the scheme and how it works https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-scheme-cbils-2/
Lending of up to £5M to any one business will be considered be it by way of loan, overdraft, asset finance or invoice finance. That said, remember the business remains liable for the borrowing – it is not a grant!
Features of CBILs
Let us remind ourselves of the features of the CBILs that make it more attractive and more available to businesses than conventional bank borrowings.
- No personal guarantees below £250,000,
- Loan above £250,000, lenders discretion about personal guarantees but cannot include Private Residence, and Government will guarantee 80% of loan amount,
- No Fees
- Up to 6 months repayment period,
- Government covers the first 12 months of interest payments.
Features of Bounce Bank Loans
Rishi Sunak delivered some welcome news on Monday introducing Bounce Back Loans, an extension to the CBILs scheme. He had been criticised by many for not providing full Government guarantees for CBILs so he has now announced Bounce Back Loans which are smaller loans fully guaranteed by the Government. These loans will be available from 4th May, and the features of these loans are;
- Loans between £2,000 and £50,000 limited to 25% of Turnover,
- Simple Online Application Form,
- No forecasting necessary,
- Cash available within days, not weeks,
- No Fees,
- Interest free for first 12 months,
- Govt working with lenders to keep the interest rate low thereafter,
- No repayments for the first 12 months,
- Fully guaranteed by HM Government.
CBIL and Bounce Back Loans Timing Issues
Just like we do not know how long the current economic situation is going to last, we do not know how long the CBILs scheme will be available. Most commentators believe it to be 2 – 6 months, but we have clients forecasting 12 – 18 months before recovery. The risk profile of businesses will increase the deeper we go into recession. Equally we don’t know how much each Bank has set aside for CBILs, each Bank has a different amount to lend and we won’t know where they are on lending that amount.
In light of the current great uncertainty, we are saying to our clients ‘What’s the downside to your business applying for a CBIL’?
Application process
The application for a CBIL is very similar in nature to that of a normal term loan. The Lender will require up to-date financial information that will at the minimum include:
- the last filed accounts, and we recommend that these are no more than 6 months since the last year end,
- up to date Management Accounts, ideally monthly, but quarterly will usually suffice,
- a Profit & Loss Forecast, and
- a Cash Flow Forecast with best case and worse case scenarios. In our heads we see a best case scenario and returning to some sort of normality in September, and a worse case returning to a sort of normality in 12 months’ time although some business owners are looking beyond that, a 12 months best case and 18 months worst case!
We all know what Lenders can be like, offering you an umbrella when it’s sunny, but nothing when it’s actually raining! What we have now is a massive great thunderstorm, so do you want to wait until the rain finally arrives when you haven’t got your umbrella in place and all the Lender has to offer is a parasol? Equally do you want to be at the ‘front of the queue or at the end when the toilet rolls have all gone’?
Conclusion.
We would ask that you seriously consider making an application for a CBIL just to cover yourself in case of further restrictions to your business. If you applied, you haven’t got to even drawdown the CBIL for a period of 3 months depending on your lender, for some lenders it’s 6 months, so the loan can be there on the backburner for when you actually need it.
If you would like to discuss this further, please contact a partner or manager at RS Partnership and we can talk to you more about the scheme.
