Small or medium-sized businesses struggling with the impact of COVID-19, may be able to benefit from a new temporary coronavirus business interruption loan scheme (CBILS), which launched on Monday 23 March 2020.
This is aimed at supporting SMEs with turnover up to £45 million and businesses can approach a list of 40 accredited lenders with a sound borrowing proposal.
- The scheme will support businesses in accessing bank lending and overdrafts.
- To further support lenders in providing finance to SMEs, each loan will be provided with a guarantee of 80%, for which businesses and banks will not be charged.
- Loans up to £5 million in value will be available.
- The Government will cover interest payments for the first 12 months.
- Businesses will be responsible for repaying the debt.
The £45 million turnover limit is on a consolidated turnover basis where there is a group of companies. If consolidated group turnover exceeds £45 million then none of the companies within that group will be eligible for CBILS and may need to consider alternative funding (see below). If consolidated turnover is less then £45 million, however, each of the UK companies within the group are eligible to apply.
Details of industries that are eligible/ineligible for this borrowing can be found here.
Further measures to support SMEs were also announced on 3 April, following concerns that CBILS would not reach companies quick enough and that business owners were being asked to put personal assets on the line as security.
The recently announced changes mean that:
- The CBILS scheme has been extended so that all viable small businesses affected by COVID-19 will be eligible; previously this was restricted to those who could not raise commercial funding through normal routes.
- Lenders have been banned from taking personal guarantees on loans of less than £250,000.
- For loans in excess of £250,000, the personal assets of business owners, which may be requested as security, are only required to cover 20% of the loan amount (the part which is not covered by the government guarantee).
Coronavirus large business interruption loan scheme
Also announced on 3 April was a new scheme for larger businesses; coronavirus large business interruption loan scheme (CLBILS). This scheme initially provided a government guarantee of 80% to enable banks to make loans of up to £25 million, later increasing to £50 million, to firms with an annual turnover of between £45 million and £500 million.
Following feedback on the scheme, the Government has recently announced a further increase in the maximum amount businesses are able to borrow to £200 million.
The maximum size for both invoice and asset finance facilities remains at £50 million.
It is worth noting that businesses that seek to borrow more than £50 million must agree to restrictions on dividend payments, senior pay and share buy-backs during the period of the loan.
Facilities offered under CLBILS are subject to commercial rates of interest (there is no 12 months interest free period as with CBILS).
Additional help for larger businesses
Larger businesses who are more robust, but are being affected by the short-term funding squeeze, may benefit from the COVID-19 corporate financing facility (CCFF).
The CCFF will help businesses to weather the current instability by catalysing the market for commercial paper in both primary and secondary markets. Further detail regarding this facility can be found here.
This scheme is funded through the Bank of England (BoE) with the aim of freeing up resources in the rest of the banking system for SMEs. The scheme is available directly through the Bank of England website and is available to all non-financial companies that meet the eligibility criteria on the BoE website. In general terms these are:
- UK incorporated companies, including those with foreign-incorporated parents and with a genuine business in the UK;
- companies with significant employment in the UK; or
- firms with their headquarters in the UK.
The BoE may also consider whether the company generates significant revenues in the UK, serves a large number of customers in the UK or has a number of operating sites in the UK.
Bounce back loans
After rising pressure, the Government announced on 27 April the new small business ‘bounce back loans’ also know as the ‘microloan’ scheme. This will have 100% Government backing for lenders. The aim is that this fast track scheme, without the need for viability tests, will give businesses the ability to borrow between £2,000 and £50,000 with the funds being sent to businesses within days. The loans will have no interest or capital repayments for the first 12 months and can accessed across the existing network of accredited lenders. The interest rate has been set at 2.5% and no personal guarantees. Find out more here.
Summary
The COVID-19 pandemic presents a challenge to businesses which is unlike any other we have faced in our lifetime, we are hopeful that the banks, supported by the Chancellor and central government, will ensure that struggling businesses get the support they need in a timely manner.
The business community is eager to see whether these most recent changes will expedite the flow of funds to struggling businesses, as clearly the need for cash is acute in many cases. We continue to support our clients through this process and ensure that they are best placed to take advantage of all assistance that is available, details of which are set out on our website, here, which includes a template to assist in managing cash flow. We will see in the coming days and weeks how the Chancellor’s announcement translates into action from the banks, who are currently dealing with a large numbers of enquiries.
If you require any assistance in making a loan application, or in establishing what impact COVID-19 is likely to have on your supply chain and sales, please call or email any of the key contacts on our website, here.
Here are our key pointers to making a successful application for finance, read more here.