Updated: Apr 4
UPDATED 03.04.20: CBILS changes by Chancellor to improve small business access.
UPDATED 22.03.20: CBILS was launched on this date and is now open for applications.
The coronavirus (Covid-19) pandemic has brought materially slowed economic activity, and in some case brought it to a standstill (e.g. hospitality). Small businesses that lack the balance sheets required to weather the storm are going to be hit hard. The UK’s 5.7 million small and medium-sized businesses are the engine room of our economy employing 13 million people – 60% of the private sector workforce. The government has recognised that it is important to support small businesses and has taken action by launching the CBILS, which is operated by British Business Bank. Given the urgent demand for funding, re-purposing an existing framework has led to the rapid establishment of CBILS. It may not be right for your business, which may be extremely frustrating, but a framework is necessary as it is clearly impossible for any government to just hand out money without one. It is also very difficult for the government to structure commercial loans without risk to provide what is effectively a grant. I know for a fact that the government and the team at British Business Bank worked around the clock to launch CBILS, which if no easy task given the relevant regulations that apply. n 3rd April, the Chancellor announced amendments to the CBILS scheme to opened it up to smaller businesses who would have previously met the requirements for a commercial facility, but would not have been eligible for CBILS.
CLBILS: A new scheme for larger business - Coronavirus Large Business Interruption Loan (CLBILS) has also been introduced to support loans of upto £25 million for business with revenues of £45 million to £500 million. Such businesses are likely to have access to internal or external support and a relationship manager and this article is focused on CBILS and small businesses.
Any application processes can be frustrating, especially when your house is literally on fire, but they are necessary and unavoidable. Although it is more easily said than done, there is no point worrying, or becoming even more stressed about things that you can’t do anything about. So, it is best to work out if CBILS is applicable, what all of your financing options are generally, and what the relevant application processes are as fast as possible. The CBILS framework has been based on the well-established Enterprise Finance Guarantee (EFG) scheme, which has already has accredited lenders providing a range of qualifying products. The EFG scheme has been suspended until further notice.
In case you are reading this and have no idea about my connection to CBILS, I am a Non-Executive Director of the government-owned British Business Bank which runs the existing EFG scheme - now CBILS. . This quick, and I hasten to add, personal guide is designed to help you understand how CBILS works with some background to give context so that you can understand why it is structured as it is. Instead of recycling explanations, I have provided links to the official information that is now available.
What is British Business Bank and what does it do?
Let me clear one thing up, which is that the British Business Bank is not actually a 'bank' – in the regulated sense or one that you can approach directly to apply for a loan. As well as debt, it is also a provider of equity capital to venture capital funds. British Business Bank has a range of formal objectives that revolve around making the finance markets work better for small businesses. Objectives include diversifying the available sources of equity and debt finance, helping to reduce the imbalances in access to finance for smaller businesses across the UK, encouraging and enabling small businesses to seek the finance best suited to their needs and helping small businesses to understand their financing options. You can read up on what those objectives are here: British Business Bank's objectives
Capital is made available to carefully selected and accredited ‘delivery partners’ who then invest in, or lend to, small businesses. Capital is then made available via high street bank financial products (e.g. term loans, overdrafts, asset financing), peer-to-peer lenders (e.g. Funding Circle), new ‘challenger banks’, venture debt funds, independent asset finance providers, cash advance lenders, angel co-investment funds, venture capital funds and so on. British Business Bank also operates the Startup Loan Scheme, which provides personal loans of up to £25,000 to start a business and which has provided £566 million of funding to over 69,500 UK businesses since 2012. The Startup Loan scheme is a good example of a government-backed financial product that is made available to entrepreneurs who would otherwise not be able to raise the capital required to start a business.
CBILS is another example of a government-backed scheme to increase the capital available to small businesses. The government is making £1.2bn available to support lending to small businesses.
To understand all of your business financing options, use the British Business Bank Finance Hub, which asks six simple questions about your business and your financing needs. Visit the British Business Bank Finance Hub here.
CBILS is based on the existing Enterprise Finance Guarantee (EFG) scheme
CBILS is a new scheme which leverages the legal framework, processes and accredited lender network of the EFG scheme. The EFG scheme was established to provide a government-back partial guarantee to lenders to reduce the risk (perceived or otherwise) of banks making loans available to small business that the ‘market’ does not view as credit worthy or which cannot provide security. This became a serious issue after the 2008 credit crunch when loan finance for small businesses dried up. Since its launch in 2009, the EFG has supported the provision of over £3.3bn of finance to more than 35,000 smaller businesses in the UK. The EFG scheme (currently replaced by CBILS) provided the lender with a government-backed guarantee of up to 75%, against the outstanding facility balance. This change in the risk profile can turn a ‘no’ from a lender into a ‘yes’.
In the 2020 Budget, the Chancellor announced the temporary ‘Coronavirus Business Interruption Loan Scheme’ (CBILS), which has was amended on 3rd April.
How to apply for a CBILS loan
If your business is in financial difficulty, you may be looking at funding options for the first time and the process, terminology and thought of introducing external stakeholders can be bewildering. As well as the paperwork, you are likely to be concerned by interest costs, repayment dates, impact of worsening short term cash flow, fees, security, requests for personal guarantees and so on. British Business Bank's 40+ accredited CBILS lenders are there to help and the scheme has been designed to reduce the risk for small businesses and lenders in so far as it is possible. CBILS is also available to sole-traders and freelancers. All of the information you require to work out whether CBILS is applicable and how you apply is available online or via your bank, which may or may not be an accredited lender. If your bank is not an accredited lender, you might want to suggest that they contact British Business Bank and apply.
IT IS IMPORTANT TO UNDERSTAND: CBILS still involves a loan application and borrowers always remains 100% liable for the debt. You have to be able to demonstrate that your business can support a loan, even with the protection of the CBILS. It is not a grant or a veiled hand-out. It is also unlikely to be relevant to start ups and very early stage businesses with limited trading history – this is the reality as each lender will have established lending criteria. The government has reduced the risk for lenders and small businesses, but the objective is not to facilitate loans that have little or no chance of ever being repaid.
Personal Guarantees: Lenders are not permitted to request personal guarantees on loans under £250,000 and can not seek security over over you principal residence (i.e. your home) for any CBILS loan. Personal guarantees can only be sought to recoup the 20% of the loan no guaranteed by British Business Bank (the UK government). However, a second loan could require a personal guarantee. The original scheme required there to be insufficient or an absence of security for the loan resulting in it not being approaved by lenders. You can't use the CBILS to refinance an existing commercial loan.
The full details of the CBILS features can be read on the British Business Bank CBILS pages here, but the short version is as follows:
Up to £5 million loan facility with a term of up to 6 years
80% guarantee of outstanding loan (for lenders)
No fees for SMEs (lenders pay a small fee - required for technical reasons)
Interest and and lender-levied fees paid by UK government for 12 months
Term - up to 6 years for term loans and asset finance and 3 years for overdrafts and invoice discounting
Security - Can be used for unsecured loans of up to £250,000. For larger loans the lender has to show a lack or absence of security.
Personal guarantees can not be requested by lenders for loans under £250,000 and in no circumstances can security cover your principal dweliing (your home).
Borrower remains responsible for 100% of the outstanding balance of the loan.
Full details of the eligibility criteria for the CBILS can be read here, but, in summary, to be eligible, your business must:
Be UK based, with annual turnover of no more than £45 million.
Operate within an eligible industrial sector (this has been widened to include a limited few do not qualify).
New: Have a borrowing proposal which, were it not for the current pandemic, would be considered viable by the lender.
New: Self-certify that it has been adversely impacted by the Coronavirus (COVID-19).
Please note that receipt of de minimis state aid does not impact eligibility (you will know what this is if it is relevant).
How long will it take to obtain a loan?
Each accredited lender has its own loan application process and criteria. Lenders are aware that small business need to access funding as quickly as possible and the CBILS is a commercial opportunity for them to deploy capital and generate a return - otherwise they wouldn't entertain it. CBILS exists to increase the likelihood of lenders making captial available to UK small businesses. They still carry some residual risk (the 20% not guaranteed by the UK government), which is a default risk that can add up at scale.
In order to start a conversation with an accredited lender, you can view a list of accredited lenders here. Click on each to access more information and contact details. Each lender will have their own process for you to follow.
CBILS is not a panacea for all small businesses facing financial difficulty and don't forget that any application needs to include a credible plan that shows how you intend to stabilise your business and repay the capital and interest after the Covid-19 outbreak. You will need to prepare for an application and collate documentation such as:
Business plan (or at least be able to explain the plan)
Three-year (or more) financial projections (including a cash flow)
Copy bank statements
Details of any other security over business assets
Historic (and draft) financial statements
Evidence to give comfort to provide the Covid-19 impact self-certification
Watch my YouTube videos and Q&A on CBILS and how to approach decisions to maximise the chances of your business surviving the pandemic.
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