In the Budget on Wednesday 11 March 2020, the Chancellor announced details of the Coronavirus Business Interruption Loan Scheme (CBILS), under which the UK government will guarantee 80% of new loans and other finance facilities up to £5 million for SMEs who are experiencing lost or deferred revenues, leading to disruptions to their cashflow. Since then the government has also announced plans to introduce the Coronavirus Large Business Interruption Loan Scheme (CLBILS), covering larger businesses not eligible for the CBILS.
A total of 6,020 loans worth £1.1 billion had been issued under the CBILS as of Tuesday 14 April and it was announced today that the CLBILS will be available from Monday 20 April.
Having spoken to a number of accredited lenders under CBILS and based upon the initial guidance provided on CLBILS, we have set out a brief summary of the key considerations you should undertake in preparing an application for funding under these schemes.
Key precursor to a CBILS application – determine your funding requirement
It is important that you determine how much your business actually requires as a result of factors arising from the Coronavirus pandemic.
- Funding sought via a CBILS/CLBILS application should be after all other alternative mitigating courses of action have been taken, including other government support measures such as the Coronavirus Job Retention Scheme (CJRS) or deferment of VAT payments; and
- although an element of contingency may be permissible, excessive or speculative requests for funding under the scheme are likely to be declined.
Which lender to apply through
Accredited lenders appear to be willing to provide loans where the requirements of the scheme are met. However, most lenders are currently only addressing applications from existing customers as they don’t have the band-width to look at ‘new business’ yet. Therefore, although we expect this to change over time, it is advisable to apply through your existing lender (assuming they are accredited under the CIBLS/CLBILS).
Five new lenders have been recently added to the accredited lenders list and we expect further lenders to be added, which will hopefully redress the bandwidth limitations and open funding via the scheme to ‘new business’.
Information to prepare in support of a CBILS application
The information required for a CBILS/CLBILS loan application can vary, particularly depending upon the quantum of the loan and how much prior knowledge/experience the lender has of the business.
For many businesses approaching their existing lenders for a smaller facility, the process may be relatively straight forward and may not require the same level of documentation. However, the areas lenders need to consider/assess, either through prior experience as existing bank or through due diligence, are generally very similar.
For any application we recommend you prepare:
- A summary of the performance of the business prior to the onset of Coronavirus and how it has been impacted by the crisis.
- Financial information showing the performance of the business in at least the twelve months prior to the impact of the Coronavirus:
- statutory accounts for the last completed financial year (or period); and
- monthly management accounts for the last completed financial year (or period) and current year-to-date, ideally including profit and loss, balance sheet and cash flow statements.
- A summary of the actions you have already taken, or are considering, to mitigate the impact including the extent to which you have explored other funding options or government support (eg furloughing of employees, VAT or rates relief etc).
- Schedules of any existing debt, hire purchase or other third-party finance commitments with current balances, repayment commitment details and expiry dates.
- A summary of the amount the business needs to borrow, how such funds will be utilised and the period over which repayments will be made
- Forecasts which you have used to estimate your total cash requirement over the next twelve months and the amount of debt you are seeking. Generally, we suggest this should:
- include integrated monthly profit and loss, balance sheet and cash flow statements presented consistently with the historical monthly management accounts;
- cover a two or three-year forecast period;
- include discrete, adjustable assumptions driving forecast financial performance and position, particularly in respect of the key factors driving the funding requirement; and
- assume circa six months disruption to business from the crisis, with business performance in 2021 and 2022 on the basis of performance before the on-set of Coronavirus – if any longer-term impacts, these should be clearly displayed and explained.
Please get in touch if you would like further details or assistance with your finance requirements.