UNDERSTANDING THE CBILS FOR SME'S
The Coronavirus Business Interruption Loan Scheme (CBILS)
When COVID-19 made its appearance, the UK government was quick to realise the impact on SMEs and set the wheels in motion to offer financial assistance. In short order, the Coronavirus Business Interruption Loan Scheme (CBILS) through the British Business Bank was set
up, followed by the Bounce Back Loan Scheme (BBLS).
There were 5.9 million private businesses in the UK as of the beginning of 2019, 99 percent of which were small or medium sized businesses (SMEs). These businesses made up 60 percent of all private jobs; a figure hovering around 16.6 million.
Of course, these businesses are crucial to the UK economy and it makes sense to care for these smaller enterprises.
As we move further through a rather bleak 2020, the effect of COVID is being felt deeply, notably by small business owners who are trying to keep their companies afloat. The helping hand held out by the UK government has been gratefully received by many, and we'd like to
assist you in understanding the CBILS option in order to make the best decision for your unique needs.
What is CBILS?
The Coronavirus Business Interruption Loan Scheme (CBILS) is a financial support package for SMEs across the UK that are suffering from lost revenue or cash-flow disruptions as a direct result of COVID-19.
Now we have multiple lenders with the ability to lend under the scheme, CBILS is much available.
Who Qualifies for CBILS?
An interest-free cash injection would be very welcome for most businesses during this time. However, lenders need to exercise discretion and to follow the guidelines laid out as qualifying criteria for the CBILS. This facility is made available on the following conditions:
UK-based businesses which includes foreign-owned businesses which are currently trading in the UK
Those with an annual turnover from £200,000 to £45 million. (If part of a group, then a group turnover of less than £45 million.)
Businesses for which a loan application would be one that a lender would have ordinarily considered, outside of the impact of COVID
The lender must be satisfied that the loan will enable the business to ride out the next few months and be in a position thereafter to repay the loan in full.
Business with no history of financial crime or fraud
How does it work?
The British Business Bank has made these funds available, but they do not lend directly to SMEs. Rather, they have a network of accredited partners in the form of high street banks and specialist lenders who offer these loans to the public, backed as they are by the government.
Businesses will be required to show that they satisfy the criteria mentioned above, and that they weren't in trouble prior to December 2019. Supporting documentation and information may include:
Complete our Lending Made Simple application form
Last set of filed accounts
6 months bank statements
YTD P&L and Balance Sheet
Features of CBILS
Offers loans up to £5 million.
Repayment terms up to 6 years.
No set up fees to the funder
No PG's up to £250k and only 20% PG above
The costs and interest on the first 12 months of the loan is covered by the government in the form of a business interruption payment.
Interest rates from 3% to 10% APR
Why not refinance your existing loan and give yourself some additional cashflow to help you through the next 12 months?
While most businesses will look to make use of the CBILS as a traditional term loan, there are other arrangements available.
Term Loans - a fixed amount of money is agreed upon alongside a fee and a fixed term and paid back in instalments, up to 6 years.
Overdrafts - a flexible short-term loan arrangement set to an agreed amount and interest fee which is made available as the user requires it.
The minimum loan amount for both term loans and overdrafts is £50,001.
Invoice Finance - the opportunity to leverage a loan against outstanding monies owed to the business, subject to an agreed interest rate and associated fees, up to 3 years.
Asset Finance - as the name suggests, a loan taken to purchase a physical asset for the business.
The maximum loan amount for invoice or asset finance is £50,000.
It is very possible that the CBILS is not the right finance vehicle for you, and you may want to consider the Bounce Back Loan Scheme (BBLS).
This scheme is aimed towards small and micro enterprises offering between £2,000 and £50,000, is government backed and incurs no interest for the first 12 months.
Planning and Optimising
It's always a good idea to work at optimising your working capital and dissect your incomings and outgoings in a comprehensive business plan.
The Institute of Chartered Accountants in England and Wales has a comprehensive working capital checklist full of excellent advice and resources to assist you.
Should I Take Out a Business Loan?
This is an excellent question to ask once you've considered the above information.
A note from Market Finance on business loans says, "A MarketFinance survey of 5,000 SMEs found that only 52% are considering taking advantage of the CBILS. When asked why this is, 67% said they already had an existing loan. The majority of these SMEs (36%) said their biggest concern was taking on additional repayments, given the current economic climate."
There are some additional thoughts to consider before applying:
For service-based businesses or those with a short shelf life, can you viably make up the shortfall from COVID plus additional loan amounts in the foreseeable future?
A comment from Bytestart notes, “It is important to understand this notion. Incurring and paying costs for any other reason than to merely keep the business alive or advance some strategic priority, the company would otherwise pursue regardless of COVID-19 with CBILS loans is a risky idea."
While you are building your business back up having taken a loan for, say £250,000, can you feasibly afford to lose a further£50,000 per year in cash-flow while you repay your loan?
The interest on the loan can be paid back with pre-tax earnings, but the capital amount will come off your post-tax income.
There is no guarantee when the COVID crisis will end. How long will your business be able to stay afloat in the current economic system with an additional outgoing cost of a loan repayment?
We understand that there are multiple factors to consider when taking out a business loan and that you have many lenders to choose from.
During your research you will find that various lenders will have their own idiosyncrasies and requirements for their CBILS offerings - some of which will work for you and some that won't.
If you have been turned down by one lender, you are free to approach another if you feel that your case has merit.
A 'no' from one institution is not a hard 'no' forever.
Typically, specialist lenders such as Lending Made Simple will offer a significantly faster turnaround and less paperwork than a bank. We know that a simpler approach to lending is always gratefully received, especially while you're dealing with the stress of a cash-strapped business.
The Market Finance article referenced above further states, "The CBILS and other measures designed to boost UK businesses are hugely beneficial in theory. But with 67% of SMEs worried they'll have to fold before CBILS funding reaches them, the Government needs to rapidly change tact and find much faster ways to deliver these measures in practice."
The team here at Lending Made Simple are brutally aware of the impact that COVID is having on small businesses across the UK. Our mission has always been to make finance as simple and easy as possible, allowing you to get on with the day-to-day running of your business.
Please feel free to contact us with any queries - it will be our pleasure to assist.