How do I apply for the UK Govt Coronavirus Business Interruption loan?

On March 11th the Chancellor, Rishi Sunak, announced in his budget that the government would be supporting businesses via the Coronavirus Business Interruption Loan (CBIL) scheme. We've created this blog to update on this scheme as it develops and more information comes to light including who is eligible and how to apply. We will also note the time of the latest update which currently is May 4th at 9:00am. We don't have all the details yet but as we do we will update this blog.

Who is offering the Coronavirus Business Interruption loans?

The loans are being offered by the partners of the British Business Bank. Traditionally these have been a mix of High Street banks, specialist lenders (i.e. the only do asset finance or only do invoice finance) and small regional development funds. See here for a full list https://www.british-business-bank.co.uk/ourpartners/supporting-business-loans-enterprise-finance-guarantee/efg-accredited-lenders/ More lenders are being added to the scheme and the scheme does need this as current lenders are struggling with the huge demand.

How does the scheme work?

The lenders are lending their own money - not government money - but their loans will benefit from a guarantee from the government of up to 80% per loan. There was a cap on the total limit provided to lenders of 60% of their portfolio but this was removed on April 27th. The government will cover interest payments (not capital though) for the first 12 months. We are aware that some banks (e.g. Lloyds) are also offering a 6 month payment holiday from the start and Funding Circle are offering a 12 month payment holiday (i.e. nothing to pay until month 13).

How do I qualify for a Coronavirus Business Interruption loan?

There are three key things here: 1) the business must be able to (self certify) that it has been adversely affected by the Coronavirus; 2) the business cannot be an "undertaking in difficulty" as at Dec 31st 2019 (usually this means it cannot have a negative balance sheet); and 3) the business must be able to show that it was able to afford the loan before the crisis. So, if you had a business that would not have been approved for a loan in January 2020, it is not likely to be approved now. On the other hand, if your trading activities have ceased because of the Coronavirus but you were profitable before this then this is the kind of business the scheme is set up to support. On a technical note your business must be UK based, turnover less than £45m, you must generate at least 50% of your income from trading activities and the purpose of the loan is to support these activities. 

How much can I get?

The minimum loan is now £50,0001 (smaller loan requests s go via the Bounce Back Loan Scheme) and the maximum is £5m. The guidelines of the scheme stipulates loan amounts available should be "... a maximum of 25% of 2019 turnover or double the annual wage bill, whichever is greater". We've also heard one High Street bank say "no more than 1.5x to 2x last year's net profit). The maximum loan per business will be £5m and if a business has previously received a EFG loan or taken another form of "state aid" then the amount they are eligible for may be lower. 

What will it cost?

As this scheme is modelled on (and now temporarily replaces) the Enterprise Finance Guarantee (EFG) scheme we're seeing that pricing is in two tiers, as it was with EFG. The top tier is High Street banks offering loans in the 3-5% range with no arrangement fees but the huge demand for these loans means the processing is not moving as fast as businesses would like. The next tier is from non-High Street bank lenders and this can be anywhere from about 6-16% and arrangement fees of 4-6% (though these are paid by the government anyway) and loans are being processed and paid in 10-14 days. What we are seeing though is many borrowers opt for this option with a view to refinancing in a year's time when the interest payments begin but also when the market is hopefully operating more normally.

How quickly will the loans be processed?

High street banks are putting as many resources behind this as they can with staff working late and even weekends to process applications. But the volumes are so huge it's often still taking several weeks to get in front of an underwriter. The second tier of lenders are moving faster with applications taking 10-14 days but all processing times are getting better as the scheme evolves. 

Will there be a standardised approval process across all lenders?

No. As is the case with the EFG scheme, each lender applies their own criteria when assessing each loan application.

Will the business owner be liable for the loan?

Yes. As with the EFG scheme, the borrower remains 100% liable for the loan and the government's guarantee to the banks only kicks in if the borrower is no longer able to make repayments and all other means of recovering the loan have been exhausted.

What steps should a business seeking finance take now?

We advocate three courses of action for now:

1. Talk to your bank. They know your business best and will be the cheapest option. They'll need filed accounts, recent management information and cash flow forecasts as a starter and it will take a while but they're still your best option. If you can be patient, it will be worth it.
2. If your bank can't help or are taking too long, then remember there are other lenders on te panel that may be able to assist. We can guide you to the most suitable.
3. Beyond the CBIL scheme there are still many other lenders that are still open and willing to lend. Criteria has tightened and they will need PGs and be more expensive that High Street banks but they are a community of non-bank lenders that have served UK SMEs well for the past decade and they remain ready to do so when required. Many of them are also pretty quiet right now as everyone chases CBILs so they can turn things around very quickly.

As further details become available we will update this blog. In the meantime if you have any queries or want to discuss your specific circumstances with us then please call and we will do our best to assist. For further information on government guidance for businesses, employers and employees please see https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses