The government has launched a new, temporary Coronavirus Business Interruption Loan Scheme (CBILS), delivered by the British Business Bank, to support SME businesses with easier access to bank lending and overdrafts.
Under CBILS loans of up to £5m will be available, with the Government providing accredited lenders with a guarantee of 80% on each loan (subject to a per lender cap on claims) to give lenders further confidence in continuing to provide finance to SMEs. The government will not charge businesses or banks for this guarantee, and any finance or loans issued will be interest free for the first 12 months.
This scheme will be for overdraft & revolving facilities, invoice & asset financing facilities and term loans, and is expected to run for 6 months with a maximum term of 6 years for any lending provided.
This new guarantee will initially support up to £1 billion of lending on top of current support offered through the British Business Bank, but will ultimately be demand-led and can increase and decrease in line.
Key eligibility checklist
When considering whether you are eligible for funding under this scheme, you will need to meet the following criteria:
- Application must be for business purposes
- UK based SME with turnover less than £45m
- At least 50% of the business turnover must be generated from trading activities
- The funding will be used to support primarily UK trading
- The business must not have received de minimis state aid exceeding €200,000 in the current and previous two years (Enterprise Investment Scheme tax relief and R&D tax credits for example)
- You wish to borrow up to £5m max
Other points to be considered
When approaching a lender for this funding it is important to consider the following:
- The business must have a borrowing proposal that would normally be viable if not for the COVID-19 pandemic
- If the lender can offer finance on normal commercial terms then they should do
Speaking to local banks, when looking to borrow under this scheme, you should be aware that the lender must secure against the borrower’s available assets first before resorting to use of CBILS. Therefore if you as a borrower have an unencumbered property asset or other asset to be used as security (but not primary residence) you will need to put that forward as security before the lender will use the guarantee.
Irrespective of the scheme itself, each bank or lender will need to assess under their own lending criteria to ensure they are lending responsibly, although some of the criteria may be relaxed at this time.
Impact on R&D Tax Credits – Notified State Aid
One unintended consequence of the CBILS scheme is the impact it may have on a company’s R&D claim where that company is claiming under the SME scheme. While this may not have been the Government’s intention when introducing this scheme, CBILS is considered to be notified state aid for R&D tax credit purposes. This therefore means that to the extent it relates to or supports a company’s R&D projects under the SME scheme, these will likely no longer qualify under this scheme which can generate a tax repayment or saving of between 33p and 44p per £1 spent. A company could still qualify under the less beneficial R&D Expenditure Credit (‘RDEC’) scheme where instead the tax benefit is just over 10p per £1 spent.
While this is a blow for those claiming under the SME scheme, practical and commercial considerations may mean that accessing CBILS scheme now to keep the company solvent and trading in these times is more important than the loss of the SME scheme on some/all projects. If you have received a loan under CBILS and make an SME tax credit claim and want to understand how this impacts your claims, please contact one of our experts to discuss exactly how this may impact your current and future R&D claims.
Key information to provide the lender:
To speed up the application process for funding through CBILS, we would recommend that you have the following information available at the time of your application:
- Up to date P&L and management accounts (identifying the point the virus hit)
- The last 3 years accounts (or less if not trading for that long)
- The ability to demonstrate that the business was doing well prior to COVID-19
- Details of any cash or reserves the company has at its disposal
It is not yet clear how quickly this funding will be to access, and therefore we would recommend considering other areas to assist with short term cashflow management while making decisions on or applying for this scheme, such as obtaining payment holidays, applying for over draft extensions and looking to utilise HMRC’s Time To Pay regime where appropriate.
At PEM we have good contacts with many local banks so if you require any assistance with applying for funding under the CBILS scheme, or require more information, please do not hesitate to get in contact with us.
Scheme Update – 3 April 2020
Following feedback received from businesses and lobbying groups, Rishi Sunak has today announced some significant changes to the Coronavirus Business Interruption Loan Scheme (CBILS) to make it easier to access for small companies, and which will come into effect from Monday 6th April 2020.
The key changes that have been made to the scheme are as follows:
Security – One of the criteria for being eligible for term loans or asset finance facilities under CBILS was that the company had to have insufficient security to support a normal commercial borrowing. This requirement has been removed so that even if a company can offer security and is eligible for normal commercial borrowing, it is still able to access the CBILS facility if you are suffering cashflow difficulties because of the Coronavirus outbreak.
Personal Guarantees (PG) – The Government has stipulated that no personal guarantees can be taken for borrowings of up to £250,000, and any PG’s taken for borrowing above this cannot include Principal Private Residence. Any recovery under the PG is also capped at 20% of the outstanding balance of the CBILS facility after proceeds of business assets have been applied.
Ineligible businesses – Some businesses are not eligible for this scheme, and these are:
- Banks, insurers and reinsurers (but not insurance brokers)
- Public-sector bodies
- Further-education establishments if grant funded
- State-funded primary and secondary schools.
Self-certification – A business must self certify that it has been adversely affected by the Coronavirus, and therefore ensuring that you have detailed evidence such as up to date management accounts and order books etc to show that the business is affected is vital.
Help for larger businesses – the new Coronavirus Large Business Interruption Loan Scheme (CLBILS) is modelled on the existing scheme for smaller businesses, and will now also help larger businesses with a turnover of between £45m and £500m turnover, by with giving them access to funding of up to £25m. This is intended to bridge the gap for those businesses that did not qualify for the original CBILS scheme, and the Covid Corporate Financing Facility, and these loans will be at a commercial rate of interest. Further details are to be announced by the end of the month.
It is understood that of the 130,000 loan enquiries that have been raised under CBILS, only 1,000 have been approved since it was announced (with £90m of lending given), and hopefully these changes should go some way to improving this.
While these changes and relaxations are welcome, it is still important to note that any lending is still at the discretion of the lender, although if you are declined by one lender this does not stop you approaching another for funding.
If you need any assistance with accessing this scheme and preparing the relevant information for an application, please contact us on: