The Coronavirus Business Interruption Loan Scheme (CBILS) is one of a number of measures announced by the government to help businesses through the Coronavirus crisis
What is the Coronavirus Business Interruption Loan Scheme?
The scheme is backed by the government owned British Business Bank, which guarantees 80% of any loan outstanding under the scheme. The scheme itself provides small and medium sized enterprises (SMEs) with access to loans, overdrafts or invoice finance and asset finance facilities, with the backing of the British Business Bank.
The scheme was commenced on 23 March 2020 and is set to run for 6 months. Adjustments to the original scheme were made on 2 April 2020 to include previously excluded smaller businesses.
The maximum loan allowed is £5 million, with terms available up to 6 years for term loans in asset finance, and 3 years for overdrafts and invoice financing facilities.
The government also provides financial support by making a ‘Business Interruption Payment’ which covers the first 12 months of interest payments, together with fees relating to any loan under the scheme. This has the benefit of no upfront costs for the borrower and low initial repayments during the main Coronavirus lockdown period when cashflow is particularly stretched.
Most of the major banks and lenders are affiliated with the scheme and there are 40 accredited lenders taking part.
Who is eligible for the CBILS?
There is a full eligibility checklist set out on the British Business Bank’s website. See: eligibity checklist. Eligibility criteria includes:-
- The company must be a UK based SME with an annual turnover of up to £45 million. If part of a group, then the group turnover must be within this limit.
- The facility must be used primarily to support trading in the UK.
- The loan must be for business purposes only, and the business must have been adversely impacted by the Coronavirus – which the applicant will have to self-certify to.
- The business must generate more than 50% of its turnover from trading activity.
- The borrower must present a proposal which is viable were it not for COVID-19 interrupting the business.
It is not possible for an individual to apply for a loan, unless they are a sole trader or a partner in a business capacity. For more information see: Who qualifies for the Coronavirus Business Interruption Loan Scheme?
How does this work in practice?
Any company who wants to apply for a loan under the scheme should first select their lender. You might have an existing finance provider that you want to use?
There is a list of all the available lenders setting what facilities they are offering at The British Business Bank website. See: list of lenders.
Any applicant will need to provide certain specified information, all of which is set out at the British Business Bank website, see: FAQs for SMEs.
Other key features of the scheme are that lenders can only take additional security or guarantees on certain provisos:
- Any personal guarantee taken for facilities above £250,000 must exclude the guarantor’s principal private residence, and recoveries are capped at a maximum of 20% of the outstanding balance of the facility after the proceeds of business assets have been applied.
- No personal guarantees can be taken for facilities below loans of £250,000.
What could the CBILS mean for me as a director?
As with any loan or financing taken by a company, directors must be mindful of their duties as company directors not to incur credit unnecessarily that they have no realistic prospect of repaying. Otherwise they risk possible personal liability in the event of a future insolvency. See: Our services/Director advice
Any loan granted under this scheme must ultimately be repaid. Whilst there is help in the form of the payment of initial fees and the initial repayment of interest by the government, any director considering signing up the company to a loan in these circumstances should have a reasonable belief that the company will be able to make repayments when due.
Recently the government has relaxed the penalties for wrongful trading for a few months to ease the pressure off directors facing unprecedented decision making due to the Coronavirus crisis. However, this doesn’t affect other directors’ duties to act in the best interests of the company and its creditors, breaches of which can lead to personal liability for a director or disqualification or both. For full details of directors’ duties see [Link to website subtopics: Claims against directors; and Directors’ disqualification. Also link to: 5.E and all of 6 in the Site Plan].
Directors should take care to validate the reasons behind taking additional financing at this time, and fully document all decisions in the company’s Minutes. It would be prudent to take professional advice before taking another finance facility, particularly in these unprecedented times where the future is so unpredictable.
For more information on the Coronavirus Business Interruption Loan Scheme take a look at the British Business Bank page and the FAQs contained therein: FAQs for SMEs.
Coronavirus Large Business Interruption Loan Scheme (CLBILS)
On 2 April 2020 the government created a new scheme to increase support for larger firms who may not be eligible under the original CBILS scheme. The scheme is similar, but the government will provide a guarantee of 80% of loans up to £25 million to firms with an annual turnover of between £45 million and £500 million.
If you would like a more information on the CBILS, our expert team at Francis Wilks & Jones is on hand to talk through the details with you, including whether this is right action to take for your company. Please call any member of our expert corporate team to discuss further.
Please call any member of our team for your free consultation now on 020 [number to insert]. Alternatively email us with your enquiry and we will call you back at a time convenient to you.