Second lockdown update 03/11/20: The loan schemes have been extended to 31st January 2021 – read full update here.
A new temporary Coronavirus Business Interruption Loan Scheme, delivered by the British Business Bank, will launch next week to support businesses to access bank lending and overdrafts. The government will provide 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 the Scheme will support loans of up to £5 million in value. Businesses can access the first 6 months of that finance interest free, as government will cover the first 6 months of interest payments.GOV.UK Guidance
COVID-19: Support for businesses through the Coronavirus Business Interruption Loan Scheme
A bit more info from CGA
At Budget 2020 on Wednesday 11 March, the Chancellor announced a ‘Coronavirus Business Interruption Loan Scheme’, and that it would become available ‘over the coming weeks’.
This has been brought forward, and we now expect the new scheme to become available in week commencing 23 March 2020.
As well as loans, there are many other types of finance supported by the programme, depending on the provider.
It will be provided by the British Business Bank through participating providers, and will offer more attractive terms for both businesses applying for new facilities and lenders, with the aim of supporting the continued provision of finance to UK businesses during the Covid-19 outbreak.
The scheme provides the lender with a government-backed guarantee against the outstanding facility balance, potentially enabling a ‘no’ credit decision from a lender to become a ‘yes’. NB – the borrower always remains 100% liable for the debt.
The Government will also cover the first 6 months of interest payments, so businesses will benefit from lower initial repayments. The business remains liable for repayments of the capital. The maximum value of a facility provided under the scheme will be £5 million pounds (the original announcement suggested a maximum value of £1.2 million.)
CBILS SUPPORTS A WIDE RANGE OF BUSINESS FINANCE PRODUCTS, INCLUDING:
- Term facilities
- Invoice finance facilities
- Asset finance facilities
TO BE ELIGIBLE FOR SUPPORT VIA CBILS, THE SMALL BUSINESS MUST:
- Be UK based, with turnover of no more than £41 million per annum
- Operate within an eligible industrial sector (a small number of industrial sectors are not eligible for support – see below)
- Be able to confirm that they have not received de minimis State aid beyond €200,000 equivalent over the current and previous two fiscal years
- Have a sound borrowing proposal, but insufficient security to meet the lender’s requirements
Full eligibility criteria will be published shortly
Nevertheless, CBILS is not a grant. It is a loan, and companies will have increased debt as they (hopefully) emerge the other side. Directors will need to be comfortable that their businesses can sustain this additional debt over the medium to long term.