Accessing the Coronavirus Business Interruption Loan Scheme (CBILS)
As a consequence of COVID-19, many small and medium-sized social enterprises in the UK are facing significant financial uncertainty and, in some cases, a sudden liquidity shortfall. In recognition of the unique challenges that are facing enterprises, and to help navigate this difficult landscape, the government has introduced a programme of financial support with a view to providing short-term stability during this period of economic uncertainty.
This update discusses the financial support available through the CBILS, the applicable eligibility criteria and how to access the scheme and the key steps you can take in support of your application. The considerations below in respect of financing agreements will be relevant, whether you are a social enterprise or a charity, however, it is advisable to thoroughly review the guidance provided by the British Business Bank before making an application.
For the purposes of this article, we will use the term financing agreements to refer to term loan facility agreements, overdraft facility agreements, and invoice and asset finance facility agreements. The charity-specific support measures recently announced by the government are not covered here, as these are addressed in a separate COVID-19 Update.
An Overview of the Available Financial Support
The CBILS supports small and medium-sized enterprises to access financing agreements of up to £5 million for a term of up to six years in two main ways:
- The government provides lenders with a guarantee for 80% of the value of each financing agreement, which ensures lenders are more likely to make finance available. However, please note you will remain 100% liable for repayment of any financing agreement.
- The government makes a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied fees, which means there should be no upfront costs and lower initial repayments.
The terms of the financing agreements will in general depend on the relevant lender, and each lender has the authority to decide whether or not to offer you finance, but the following financing terms are stipulated by the CBILS:
- The tenor for term loan facilities and asset finance facilities is up to six years. For overdraft facilities and invoice finance facilities, the tenor is up to three years.
- Under the scheme, lenders will not take personal guarantees of any form for financing agreements below £250,000. For financing agreements above £250,000, personal guarantees may still be required, at a lender’s discretion, but:
(1) a borrower or guarantor’s principal private residence may not be taken as security;
(2) recoveries under these guarantees are capped at a maximum of 20% of the outstanding balance of the financing agreement after the proceeds of business assets have been applied.
The scheme is delivered through commercial lenders, backed by the government-owned British Business Bank and there are more than 40 accredited lenders able to offer the scheme, including all the major banks.
In order to access the CBILS you must (1) be an eligible enterprise; and (2) satisfy the business criteria.
1. Eligible Enterprises
The CBILS is open to a wide variety of entities carrying out business activity in the UK. However, support is not available for enterprises from the following sectors: banks, insurers and reinsurers (except insurance brokers); public-sector bodies; and further-education establishments, if they are grant funded; and state-funded primary and secondary schools.
It is important to note that in addition to the above, the relevant enterprise must generate more than 50% of its turnover from trading activity. There is no concise, definitive answer on what exactly comprises trading activity for the purposes of social enterprises and charities, and this aspect is often a challenge for charities when assessing what activity they can lawfully pursue and the related tax implications.
Trading is usually considered to be the sale of goods or services, but there are cases in which charities may sell goods or services, without the activity being regarded as a ‘trade’. For further information, the government has set out certain factors that may be useful in assessing whether an activity is considered trading in the Charity Commission for England and Wales, Guidance, Trustees trading and tax: how charities may lawfully trade, 24 February 2016.
2. Business Criteria
The applicable business criteria require that your enterprise:
- is UK-based in its business activity;
- has an annual turnover of no more than £45 million;
- has a borrowing proposal, which the lender would consider viable, were it not for the current pandemic;
- self-certifies that it has been adversely impacted by COVID-19;
- has not been classed as a ‘business in difficulty’ on 31 December 2019, if applying to borrow £30,000 or more.
These business criteria are not exhaustive, and lenders will likely need further information to confirm eligibility.
How do I access the CBILS?
1. Contact a CBILS Accredited Lender
Details of CBILS accredited lenders are available on the British Business Bank’s website and, after selecting a CBILS accredited lender, you should make an approach. Please note that the British Business Bank has advised that due to high demand for CBILS financing arrangements, phone lines are likely to be busy and branches may not be able to handle enquiries in person.
Not every accredited lender can provide every type of financing arrangement available under CBILS, and the amount of finance offered varies between lenders. You should visit the lenders’ websites for more information on the amounts they are able to offer. If one lender turns you down, you can still approach other lenders within the scheme.
2. What Lenders Will Need From You
When you apply for a business loan, most lenders will ask you for details of the loan and certain supporting documentation. It is likely that you will need to provide details of:
- the amount you would like to borrow
- the purpose of the funds, for the lender to verify that it is a suitable business purpose and the right type of finance for your needs
- the period over which you will make the repayments, for the lender to assess whether the loan is affordable for you
You will need to provide certain evidence to show that you can afford to repay the loan. This may include financial information such as management accounts, cash flow forecast, business plan, historic accounts and/or details of assets, but this will ultimately depend on each lender’s requirements. From a practical perspective, it may be easier to approach your existing lenders as they may not require the same level of documentation.
Key Resources and Further Information
There is a lot of additional information available online that may help you in making your application and, in particular, it may be useful to review the guidance below on the British Business Bank’s website:
- Coronavirus Business Interruption Loan Scheme (CBILS)
- Quick Eligibility Checklist for SMEs
- FAQs for SMEs: Coronavirus Business Interruption Loan Scheme (CBILS)
- Coronavirus Business Interruption Loan Scheme (CBILS) – Current Accredited Lenders and Partners
- British Business Bank
Information in this update has been provided by A4ID’s Legal Partner Shearman & Sterling LLP and does not constitute legal advice. If you require specific legal advice arising from the matters outlined in this update please contact the Pro Bono Legal Services Team at email@example.com.
Checklist of Key Action Points
- Assess whether you are an eligible enterprise and can satisfy the business criteria.
- Consider the key terms of the financial assistance you require and ensure you can clearly communicate these to a lender.
- Establish the supporting documentation you can provide and prepare and collate any additional materials, which you may like to deliver in support of your application.
- Review the list of CBILS accredited lenders and make contact with a lender. Alternatively, to the extent they are an accredited lender, consider approaching your existing finance providers.