Coronavirus Business Interruption Loan Scheme (CBILS)

The British Business Bank has made changes to its Coronavirus Business Interruption Loan Scheme (CBILS) to give more businesses the chance of securing much-needed finance.

It’s believed that about half of the applications to the scheme have been unsuccessful, many from companies that have fallen foul of the newly amended “business in difficulty” criteria.

From its launch until mid-June, the scheme received 96,492 applications. Of those, 49,247 were successful and a total of £10.11bn was approved for lending.

But that figure was dwarfed by lending under the BBLS (Bounce Back Loan Scheme), which is aimed at small and micro businesses. BBLS has so far loaned £26.34bn, despite being introduced later than CBILS.

However, BBLS is only available for loans of £50,000 or less. For larger sums, you’ll still need CBILS. The scheme now has 98 accredited lenders - more than double the number available when it first launched.

They include a variety of types, which the British Business Bank categorises as:

• high-street banks
• challenger banks
• asset-based lenders
• smaller specialist local lenders

What are the eligibility criteria?

CBILS allows smaller UK businesses to borrow up to £5m if they’ve lost revenue or had their cashflow disrupted as a result of the COVID-19 pandemic. Currently, the scheme is set to receive applications up to 31 March 2021.

You can apply for credit under the scheme if your business meets the following criteria:

• Based in the UK
• Turnover is no more than £45m
• Have a viable borrowing proposal
• Business adversely affected by COVID-19, Credit Passport can help Get a free Pre-crisis credit report to support your loan application
• Not have been classed as a “business in difficulty” on 31 December 2019

The requirement for a viable proposal means that the business would have viable were it not for the pandemic. The “business in difficulty” requirement only applies if you’re looking to borrow more than £30,000.

If your business has been negatively affected by the COVID19, Credit Passport can help. Get a free Pre-crisis credit report to support your loan application.

What is a business in difficulty?

Amended criteria for a “business in difficulty” apply from 30 July 2020. Businesses with fewer than 50 employees and less than £9,000,000 in annual turnover are now not considered to be “undertakings in difficulty” unless they are:

(a) subject to collective insolvency procedure under national law, or

(b) in receipt of rescue aid (not repaid) or restructuring aid and are still subject to a restructuring plan.

A “business in difficulty” is defined as a business which, at 31 December 2019, met any of the following criteria:

• Accumulated losses of more than half of its subscribed share capital for limited companies, or, for unlimited liability companies, its capital
• Started, or had fulfilled the criteria to be put into, collective insolvency proceedings
• Previously received rescue aid that was yet to be reimbursed (or, in the case of a guarantee, terminated)
• Received restructuring aid and was still under a restructuring plan
• If not classified as an SME, had fallen below solvency ratios for the previous two years.

Who cannot apply?

Some types of businesses are excluded from applying under the CBILS scheme. They are:

• Public sector bodies
• State-funded primary and secondary schools
• Banks
• Insurers and reinsurers

Unlike insurers, insurance brokers are permitted to apply.

How much can my business borrow?

If you’re looking to borrow or secure an overdraft worth less than £50,000, you should apply instead under the Bounce Back Loans Scheme (BBLS) scheme. (See our separate article for details on how to apply).

The amounts you can borrow under the CBILS scheme depend on the type of credit. However, the exact amount you can borrow will depend on the lender:

• Term loans or revolving credit facilities (overdrafts): Between £50,000 and £5m.
• Invoice finance and asset finance: Between £1,000 and £5m.

It’s probably well worth switching a CBILS loan to BBLS because the interest rate under BBLS is low - a fixed 2.5%. According to a report in the Telegraph, accountancy firm HW Fisher found that most businesses were paying 6% interest.

What are the repayment terms?

The repayment length of the facility depends on the type of borrowing you need:

• Loans and asset finance: up to 6 years
• Overdrafts and invoice finance: up to 3 years

What are the interest rates?

Unlike BBLS, loans are offered at commercial rates so your lender will determine the rate you pay.

According to the Telegraph, accountancy firm HW Fisher found that most businesses were paying 6% interest under CIBLS. In the early days of the scheme, some lenders were reportedly charging as much as 30%.

The good news is that there’s no interest to pay in the first 12 months. The Government will cover interest in the first year, as well as other fees, with a Business Interruption Payment.

What are the liabilities?

Loans under CBILS aren’t risk-free. Borrowers remains liable for 100% of the debt they take on. But under the revised CBILS scheme, lenders cannot ask for personal guarantees if the loan value is under £250,000.

For larger amounts than this, lenders may still ask for personal guarantees. However, your home (principal private residence) cannot be taken as a security.

Recoveries under personal guarantees are capped at 20% of the outstanding balance after the proceeds of business assets have been applied.

Should I transfer an existing CBILS loan?

If you previously secured a loan worth less than £50,000 under CIBLS, it may be worth transferring it to BBLS. The interest rate under BBLS is a fixed 2.5%.

The savings you could make from switching to BBLS could be substantial. Annual charges would be £1,250 on a £50,000 loan at 2.5% interest, compared to £3,000 for the same amount if the interest rate is 6%.

You have until 4 November 2020 to transfer an existing loan to BBLS.

You can apply for loans or revolving credit facilities worth between £50,000 and £5m, or Invoice finance and asset finance worth between £1,000 and £5m.

How to apply for CBILS credit

Step 1 - find a lender

You should first contact your own bank to see if it’s able to provide credit, and on what terms. Demand under all the Government schemes is high, and some banks are understandably prioritising existing customers.

If you don’t have any success with your own bank, or you’re looking for a type of credit they can’t provide, you will need to apply to another accredited lender. At the time of writing, 98 lenders were accredited by the British Business Bank.

We’ve made it easy to access many of the leading lenders in one place. Credit Passport has teamed up with Finpoint to create a funding portal, though which you can apply for COVID support. The portal enables you to specify what you need the funding for, such as protecting jobs, paying suppliers, and paying or refinancing loans.

Step 2 - make an application

The British Business Bank advises you to make an application online, since branches are likely to be busy.

The application needs to state:

• The amount you want to borrow
• The period over which you will repay
• The purpose the money will be used for

The lender will check whether the money will be used for a suitable business purpose, and the best type of credit to provide.

You’ll also need to provide supporting information so that the lender can assess your ability to meet repayments. Requirements will vary under different lenders, but they may ask to see:

• Management accounts
• A business plan
• Historic accounts
• Details of assets

If you have already signed up to Credit Passport, it will be much quicker to submit this information to lenders because your account will already contain much of this data. Through our portal, you can instantly submit it to a wide range of CBILS-accredited lenders.

Step 3 - the lender decides

The lender assesses whether or not it believes you will be able to make the repayments and advises you of its decision.

If a lender turns you down, you will still be able to apply to other accredited lenders. If you were turned down a while ago, it could be worth going back to the lender that rejected you.

That is particularly true if you’re a smaller business facing cashflow difficulties. The eligibility criteria have been loosened since the scheme started, and businesses no longer have to meet the requirements for a standard commercial loan.

When is the closing date?

As of 17 December 2020, the Government has announced that it will be extending the Coronavirus Business Interruption Loan Scheme (CBILS) until 31 March 2021.

How Credit Passport can help

If you are not getting anywhere with your own bank, we've teamed up with Finpoint to help SMEs complete the process and prepare the paperwork to reach out to a wider market. You can start the process at the Credit Passport Finpoint Funding Portal.