Coronavirus business interruption loan scheme
The government backed Coronavirus Business Interruption Loan Scheme (CBILS) has been rolled out at unprecedented speed, and the size of the financial packages being made available to support businesses and employees are also unprecedented. But these are also, of course, unprecedented times.
What normally takes companies, and the government, many months to decide and then act upon is having to be done by one and all in a matter of days. This inevitably leads to the overall strategy being agreed, and even started to be implemented, but whilst the finer details are still being worked on with regard to how to deliver it in reality.
These circumstances inevitable lead to some confusion, but I for one think that criticism is unjustified as the government is trying to reassure businesses and employees that they will be protected, but it is simply not possible for the fine print to keep up with the big plan when things change so rapidly. However, within a matter of days the broad plans are being refined and the terms are starting to become better understood. Sadly, for many people, understanding the small print can be every bit as difficult as double guessing what the exact rules might have been when there was no small print to see.
What are the basic rules of CBILS?
These loans are to be provided by the British Business Bank, which is effectively part of The Treasury, but they will be accessed via around 40 participating lenders, including all the high street banks. The government will guarantee 80% of the loans, but that means that the actual lender will still be liable for 20% of any losses, and as such they will make their own assessments of the borrower.
The loans are intended to alleviate financial problems resulting from the coronavirus situation and are to be made available to all qualifying SMEs, but the key word here of course is ‘qualifying’. The main qualifying criteria are:
- Must be UK based with a turnover not exceeding £45m
- Maximum loan value £5m
- Facility covers a wide range of facility types including term loans, overdrafts, invoice financing, and asset financing
- Interest free to the borrower for the first 12 months
- The borrower is liable to repay the full 100% of the loan plus any interest
- The business must be an existing business that was viable prior to any impact from coronavirus
- The business must have been trading for two years
- The loans are intended to be made available as quickly as possible
- The government has not called for any security such as directors guarantee or charges on assets on the first £250,000 of any loan
What is the reality of accessing any CBILS loans?
It seems that already the frustration is setting in, as many business owners were expecting CBILS to be almost something of a free giveaway without any of the normal loan application procedures to go through. However, some of the terms above, most notably that it is only available to existing, viable businesses has already dashed the hopes of many smaller companies, and this was compounded by the two years trading requirement.
The point that has caused even bigger frustration amongst those businesses that are eligible is that whilst the government itself has not called for any security, many of the individual lenders are, and so any borrowers will need to compare one lenders terms with another. However, in reality, most businesses will be confined to their existing bank because of the time and pain required to go through the whole Know Your Customer (KYC) and Anti Money Laundering (AML) procedures with any new lenders.
Whilst the lenders are being encouraged to streamline the application process and speed up approval and disbursement of funds, the borrowers will still need to provide business plans, accounts, financial forecasts, and all the other normal loan application documentation. Even if companies have up to date information to hand this whole process will inevitably take time.
What if businesses need help in applying?
Many businesses will be able to go through this process alone, but many others may not, especially given the fact that staff are working from home and many businesses may be looking to access these loans as a matter of some urgency.
One source of assistance might be your accountant, and another might be certain business groups or federations. But as I seem to have said many times over the last few weeks, businesses need to adapt and be agile, and look for different ways of doing things, and indeed be able to react rapidly to ever changing events and there are other sources of assistance available also.
We at BOOM & Partners understand SMEs and their needs, and how to help them grow and prosper. We also have the benefit of understanding the banks very well, and the financial and legal aspects of CBILS, so if there are readers that we can assist in any way then I would be very happy to see if we can help to simplify and speed up your applications. We would of course also be happy to help in any other way that we can.