Posted 02/04/2020 by Amy Patterson
The government, in direct response to the COVID-19 global pandemic has stepped up their support with the CBILS scheme. This was launched on the 23 March 2020 and is a temporary facility for a suggested 6 months and will be subject to change and review going forward.
CBILS can provide facilities of up to £5 million for smaller businesses who are experiencing loss or deferred revenues, leading to cashflow disruption. CBILS supports a wide range of business finance products, including term loans, overdrafts, invoice finance and asset finance.
The main drive of the CBILS scheme is to encourage lenders to advance funds to clients at this time of need, it provides the lender with a government backed guarantee potentially enabling a negative credit decision from a lender to become a positive decision. The Government in conjunction with the lenders have agreed to waive the requirement for personal guarantees in most cases, reserving this requirement for cases in need of additional support or advances of £250,000.00.
The key features of the scheme
The scheme provides the lender with a government-backed, partial guarantee (80%) against the outstanding facility balance, subject to an overall cap per lender.
Finance terms are up to six years for term loans and asset finance facilities. For overdrafts and invoice finance facilities, terms will be agreed with the lender in line of credit sanctioning.
Security: At the discretion of the lender, the scheme may be used for unsecured lending for facilities of £250,000 and under. For facilities above £250,000, the lender will require suitable security and Personal Guarantees and a Debenture to be put in place whilst using CBILS. If the lender can offer finance on normal commercial terms without the need to make use of the scheme, they will do so. Note that primary residential property cannot be taken as security under the scheme.
The maximum value of a facility provided under the scheme will be £5 million, available on repayment terms of up to six years or 72 months.
Interest and fees are paid by Government for 12 months. The Government will make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied fees, so businesses will benefit from no upfront costs and lower initial repayments.
Fishery, aquaculture and agriculture businesses may not qualify for the full interest and fee payment.
The borrower always remains 100% liable for the debt (the guarantee is to the lender, not the business).
Government has confirmed that the amount of funding available under CBILs will be demand-led so funds will not run out. There is no immediate need to approach a lender if you do not need finance in the short term.
Businesses from most sectors can apply for the facility.
The following trades and organisations are not eligible: Banks, Building Societies, Insurers and Reinsurers (but not insurance brokers); The public sector including state funded primary and secondary schools; Employer, professional, religious or political membership organisations or trade unions.
To be eligible for a facility under CBILS, an SME must:
Be UK-based in its business activity, with annual turnover of no more than £45 million.
Have a borrowing proposal which, were it not for the current pandemic, would be considered viable by the lender, and for which the lender believes the provision of finance will enable the business to trade out of any short-to-medium term difficulty.
Sole traders and freelancers are eligible to apply as long as the business activity is operated through a business account. The business must generate more than 50% of its turnover from trading activity.
CBILS runs independently of other forms of government support that businesses may be benefitting from such as business rate reliefs and unrelated grants.
A business will not be precluded from seeking a loan under CBILS because it has availed itself of other forms of support.
If a business has previously had de minimis state aid (any public money given as support), it does not impact eligibility for CBILS and does not need to be taken into account by the Lender. De minimis state aid is state aid of up to EUR200,000 in total during the current and previous two fiscal years. If a business has received state aid above that threshold, it may impact CBILS eligibility.
Five questions to ask yourself
1. Has the outbreak of COVID-19 caused your business to experience a downturn and loss in trade which has had a direct and visible impact on the organisation?
2. Is your business based in UK with a combined turnover of no more than £ 45,000,000?
3. Would you be seeking funding of between £25,000 to £ 5,000,000?
4. Can you prove that your business would be able to support/afford this lending before the COVID-19 situation?
5. Are you comfortable entering an additional credit agreement at this time and you appreciate the long-term implications of such an arrangement?
So, if you have answered YES to the above questions, we continue the process.
This is not the full list of questions, not by a long way, but what the questions do try and show is despite the very extreme position we find ourselves in, the funders will apply proper credit assessment and searches and they will submit the deal to underwriting for approval. So within your application you need to be able to demonstrate that the lending will assist the firm to trade in the medium to long term, this will be a fundamental requirement for the lenders as this will form part of the qualifying criteria for any government guarantee under the CBILS arrangement.
If you are unsuccessful under the CBILS initiative we will look outside of this scheme for an alternative lender that will support an application and with access to over 200 lending entities we will comfortably be able to locate all manner of funding solutions from loans, asset finance, refinance packages for existing assets and factoring.
CBILS is available through accredited lenders. These are listed on the BBB website (www.british-business-bank.co.uk). These lenders range from high-street banks, to challenger banks, asset-based lenders and smaller specialist local lenders.
In the first instance, we would suggest that you speak with us and discuss what options present themselves presently given your current position. We have an excellent accounts team who are supported by Justin Lavery who is providing a Corporate Funding solution for the firm. We will need to produce a document bundle to the lender, it will need a detailed submission to be considered, this will include, but not limited to:
· Credit Application
· Business Plan
· Up to date accounts for three years
· 6 months bank statements
· 3 Year projections
· Up to date Debtors report
· Up to date Creditors report
· And further information request by lenders which will vary
We at Farnell Clarke have joined forces with a number of national brokerages all charged with the requirement to assist the business community at this time to, where possible, secure funding solutions with primary focus on:
· Asset Finance
· Refinance of assets of all kinds
· Secured lending
· Factoring and Invoice Finance
The application process is one that we are designed to assist with from compiling the application to the funder, to preparation of additional accounting information required to aid the process through to issue of the documentation, completion and the eventual provision of the fund loan amount to your account.
So please either call or email your client manager, they will then channel your requirements to our in-house finance department. We will require you to complete relevant paperwork with us to allow an application to be made, this will need to comply with all GDPR regulations providing your agreement to sharing your personal date with third parties which in this case will be lenders and search providers.
Contact Justin Lavery, our head of Corporate Funding on 01493 488 182 or 07944 983 413 whereupon he will look to assist you with your current requirements.
If a business is unable to access the finance it needs through its usual provider, it can also consider approaching other lenders.
Decision-making on whether businesses are eligible for CBILS is fully delegated to the accredited CBILS lenders. If an accredited lender can offer finance on normal commercial terms without the need to make use of the scheme, they will do so.
The information on this site about legal matters is provided as a general guide only. Although we try to ensure that all of the information on this site is accurate and up to date, this cannot be guaranteed. The information on this site should not be relied upon or construed as constituting legal advice. You should seek appropriate legal advice before taking or refraining from taking any action.Back to Blog