The Chancellor has taken further action to support businesses impacted by the coronavirus crisis by bolstering business interruption loans for small businesses and announcing a new scheme for larger companies.
Further details will be announced later over the coming days, but the announcement included:
- So far, £90 million of business interruption loans have been approved for c.1,000 SMEs under the Coronavirus Business Interruption Loan Scheme (CBILS) and £1.9 billion of finance has been provided to larger businesses under the Covid Corporate Financing Facility (CCFF).
- The current CBILS is to be extended to widen eligibility to more SMEs.
- Lenders have been banned from requesting personal guarantees on loans under £250,000 (previously there was merely no requirement to obtain these).
- A new scheme was announced to offer support for larger firms not currently eligible for either the CBILS or CCFF.
- The Chancellor also emphasised the importance of lenders moving quickly to support the economy, jobs and businesses.
This is at partly driven by widespread concerns regarding the nature and effectiveness of initial schemes offered to date.
Observations around the impact of CBILS to date
- The accredited lenders are inundated with enquiries from their existing customers and struggling for capacity to address new business. In time, this pressure should ease.
- There has been certain element of misinterpretation of the CBILS by businesses. In particular:
- It is a bank guarantee scheme, not a business guarantee scheme, and was limited (prior to these announcements) to viable businesses that can afford the debt but don’t have security; and
- The borrower remains 100% responsible for repayment of the debt (not the government).
- Many businesses appear to be viewing the CBILS as the first port of call for debt – as it stands, it should be the last.
- Existing lenders have been offering capital repayment holidays and other short-term finance in preference to CBILS.
- Some businesses are making opportunistic enquiries, asking for more than they need.
- Customers have expressed frustrations that they are obliged to use existing security where available.
- There is some variation between what lenders are requiring as a guarantee from businesses for the 20% not guaranteed by the government.
- Banks are conscious of the need for appropriate due diligence.
- Many businesses are ‘stranded’ with circumstances that don’t meet the CBILS or CCFF.
- A large proportion of corporate and commercial property transactions are on hold.
- There is some expectation that significant restructuring will be required when we ‘come out the other side’.
Changes to the CBILS
The CBILS has been significantly expanded, with changes to the scheme’s features and eligibility criteria aiming to ensure even more smaller businesses across the UK impacted by the coronavirus crisis can access the funding they need. The expanded scheme will be operational with lenders from Monday 6 April 2020.
The changes will also apply to finance already offered by lenders to ensure that all business owners receive the same level of government protection. The changes should be retrospectively applied by lenders for any CBILS facilities offered since 23 March 2020. For any commercial (non-CBILS) facilities offered since the same date, providing the borrower meets the CBILS eligibility, lenders have been asked to bring these facilities onto CBILS wherever possible (where the lender is accredited to offer the same facility through CBILS) and changes retrospectively applied as necessary.
To maximise the support available, the Chancellor is extending the CBILS so that all viable small businesses affected by COVID-19, and not just those unable to secure regular commercial financing, will now be eligible should they need finance to keep operating. Insufficient security is no longer a condition to access the scheme.
For all facilities, including those over £250,000, CBILS can now support lending to smaller businesses even where a lender considers there to be sufficient security, making more smaller businesses eligible to receive the Business Interruption Payment. However, where there is sufficient security available, it is likely that the lender will take such security in support of a CBILS facility.
You may therefore consider re-contacting your lender if you have previously been unsuccessful in securing funding.
Lenders are no longer permitted to request personal guarantees for loans under £250,000. For facilities above £250,000, personal guarantees may still be required, at a lender’s discretion, but:
- They exclude the Principal Private Residence (PPR), and
- Recoveries under these are capped at a maximum of 20% of the outstanding balance of the CBILS facility after the proceeds of business assets have been applied.
The government will continue to cover the first 12 months of interest and fees.
The government is also making operational changes to speed up lending approvals.
Coronavirus Large Business Interruption Loan Scheme (CLBILS)
The new CLBILS will provide a government guarantee of 80% to enable banks to make loans of up to £25 million to firms with an annual turnover of between £45 million and £500 million.
This will give banks the confidence to lend to more businesses that are impacted by coronavirus but which they would not lend to without CLBILS, particularly those whose circumstances were not appropriate for either the CBILS or CCFF.
Loans backed by a guarantee under CLBILS will be offered at commercial rates of interest.
However, unlike the scheme for SMEs (the CBILS), businesses will not get a 12-month holiday on paying the interest and fees involved.
Further details of the scheme will be announced later this month.
Get in touch if you would like further details or assistance with your finance requirements.