Coronavirus Business Interruption Loan Scheme

25 March 2020 - Elizabeth Nichols

One of various measures introduced by the government to help businesses in the current health crisis has gone live this week, namely the Coronavirus Business Interruption Loan Scheme or CBILS.

CBILS has been set up to provide small and medium sized businesses based in the UK who have a turnover of up to £45m with access to various types of lending (loans, overdrafts, invoice and asset finance) of up to £5m for a term of up to 6 years through the High Street banks and various other lenders.

The main advantage to the scheme is that it will help businesses that may otherwise struggle to secure lending as the government will provide the lender with a guarantee for 80% of each loan, assuming that the criteria are met. Not only this, but the first 12 months are interest free for the business as the government will cover the interest and fees charged over this period. This means it will be an injection of initial funds into the business at a time when cash flow is difficult and the ongoing service of the debt will be reduced for the first 12 months, also assisting cash flow. 

CBILS is specifically targeted at those businesses that have seen a downturn as a direct result of Covid-19 or those whose growth can’t be supported under normal lending criteria. However, the proposal needs to be considered viable were it not for the Covid-19 outbreak and the lender needs to be happy that the provision of the finance will enable you to trade out of any difficulties.

The CBILS was announced by Rishi Sunak in the Budget on 11 March and it has taken several days for the details of the scheme to be agreed and rolled out to the various financial institutions. It is the first of the government’s support schemes to go live, although it is not clear at this stage how fast the process will be from first application to receiving the funding, so it is advisable to consider applying as soon as you can if you think you would benefit from this scheme.

Anyone applying for funding will also need to supply the lender with various information to support their application. Whilst I expect the type of information will vary on a case by case basis, you should expect to have the following available as a starting point:

  • The last set of annual accounts for the business
  • An up to date set of management accounts
  • Details of any other action you are taking to help cash flow
  • Cash flow forecasts for the next 12 months showing the level of lending required, assumptions made and risks identified
  • Details of any other financial commitments within the business such as outstanding HP agreements

While this scheme may not suit everyone, it is part of an overall set of measures that have been introduced quickly to try and help businesses continue to trade at a difficult time and provide them with access to cash. Whether it is widely taken up remains to be seen, given the fact that a business needs to prove it can trade out of the current situation, especially as the economic environment is changing on a day to day basis.

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