The Chancellor announced details of the Coronavirus Business Interruption Loan Scheme (CBILS) in March under which the UK government will guarantee 80% of new loans and other finance facilities up to £5 million for businesses experiencing lost or deferred revenues, leading to disruptions to their cashflow. Plans have also more recently been announced for a Coronavirus Large Business Interruption Loan Scheme (CLBILS), covering larger businesses not eligible for the CBILS.
“Saffery Champness has spoken to a number of accredited lenders under CBILS and we have been able to draw up a summary of the key considerations that businesses should undertake in preparing an application for funding under the scheme.”
Determine your funding requirement
It is important to determine how much your business actually needs as a result of factors arising from the Coronavirus pandemic.
Funding sought via a CBILS application should only 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), deferment of VAT payments and other options. 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. Whilst we expect this to change over time, it is advisable to apply to your existing bank or lender (assuming they are accredited under the CBILS scheme).
Five new lenders have been recently added to the accredited lenders list and we expect further lenders to be added.
Information to prepare in support of a CBILS application
The information required for a CBILS/CLBILS loan application can vary, particularly depending upon the amount of 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 straightforward and may not require the same level of documentation. However, the areas lenders need to consider/assess, either through prior experience as the applicant’s existing bank or through due diligence, are generally very similar.
For any application we recommend that the following should be prepared:
- 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 12 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 already taken, or those you 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 deferred payment, rates relief etc).
- Schedules of existing debt, hire purchase or other third-party finance commitments with current balances, repayment commitment details and expiry dates.
- A summary of the amount that 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 c. six months disruption to business from the crisis, with business performance in 2021 and 2022 on the basis of performance before the onset of Coronavirus – if any longer-term impacts are envisaged these should be clearly displayed and explained.
Martyn Dobinson says:
“Successful applications to the CBILS scheme will need to carry significant levels of detail. Where an applicant may have trouble pulling this together they should not hesitate to contact their professional advisor for help to do this.”