Following our original advisory note published on 23rd March 2020 the Coronavirus Business Interruption Loan Scheme (CBILS) is available through participating lenders.

There has been a lot of activity and communication between Government, Banks and Advisers to seek to flush out a greater understanding of how clients might prepare to make a formal application that is capable of being fast-tracked through the banking process.

We set out below some advice and tips as to how you might approach making your application over the coming weeks. Please note that the requirements set out below are in line with Government expectations of the Banks at this time – whilst you may find the information required to be extensive and exhausting to compile the Banks are under direction from Government to gather all information as set out to enable them to progress the application a to seek Government security.

Please note a very important point: your business loan application and supporting information will need to demonstrate the serviceability of the new loan facilities you intend applying for; this is a key requirement for the Banks to be able to prove if you are to successfully enter the Scheme – your application should ideally incorporate a long term forecast to prove loan serviceability on return to “normalised” trading, whenever that may be…

Should you require our help and support in making a formal application, then please in the first instance e-mail jasonm@barrons-bds.com who is co-ordinating applications and advice in conjunction with the Practice Partners.

 

 

  1. Recap – What is the Coronavirus Business Interruption Loan Scheme (“CBIL”)?
  • CBILS is a new temporary scheme which is aimed to support SME’s suffering from immediate financial distress (which must be resultant specifically from the COVID-19 pandemic) with access to loans, overdrafts, invoice finance and asset finance of up to £5 million and for up to 6 years (dependent upon the type of finance sought);
  • The government will also make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied fees, so smaller businesses will benefit from no upfront costs and lower initial repayments;
  • The government will provide lenders with a guarantee of 80% on each loan (subject to pre-lender cap on claims) to give lenders further confidence in continuing to provide finance to SMEs.
  • The scheme will be delivered through commercial lenders (there are 40 accredited lenders), backed by the government-owned British Business Bank;
  • Please note that the borrower always remains 100% liable for the debt; the Government security only being available to the Bank as last resort.
    • You must seek to prove that you had a stable and viable business immediately before the impact of COVD-19 to enter the scheme;
    • The scheme only 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’.

 

  1. Am I Eligible?
  • You are eligible for the scheme if;
    • your business is UK based, with turnover of no more than £45 million per year;
    • your business generates more than 50% of its turnover from trading activity;
    • your business meets the other British Business Bank eligibility criteria;
  • Support for larger firms is to be provided through the COVID-19 Corporate Financing Facility, whereby the Bank of England will buy short term debt from larger companies

 

  1. Personal Guarantees – What Is The Position
  • In the first instance, the lender (your Bank not the Government) will consider the need for the provision and extent of personal guarantees.
  • When the scheme was first released it appears the Banks drew an immediate inference that they were required to take:
    • A short-form personal guarantee for CBIL facilities granted up to £250,000;
    • A short-form guarantee and a debenture for CBIL facilities granted over £250,000
  • The position has substantially changed in recent days, and currently, we understand that:
    • For CBIL facilities granted for less than £250,000, it is at the discretion of the lender to require a personal guarantee (we are aware that some Banks have already confirmed they will not be seeking a Personal Guarantee);
    • For CBIL facilities granted for more than £250,000, the scheme requires the lender to establish a lack or absence of security prior to businesses using CBILS – it is, therefore, more likely that a personal guarantee will be required, however, the level of the guarantee will be determined on the proposition (amount, term, borrower financial status, etc) rather than a flat 100% amount.
    • Any personal guarantee you are asked to provide will not include the security of your home (principal private residence).

 

  1. How Can I Access The Scheme?
  • CBILS is available through the British Business Bank’s 40 accredited lenders, which are listed on the British Business Bank website

https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-scheme-cbils/accredited-lenders/ ;

  • In the first instance, for speed of application, you would be advised to talk to your own Bank first – ideally via the lender’s website if you do not hold a Relationship Manager e-mail address or another alternative contact at the Bank.
    • We would also recommend you contact Jason Michelow (jasonm@barrons-bds.com) either before making contact with the Bank or at least simultaneous to your intended contact so that we can both note your intentions and also assist you with the provision of our support and guidance as necessary.
    • You are not bound to approach your own Bank, any accredited lender can be approached, but there will be a lot of background information and processes to be adopted to obtain funding from a new lender in all likelihood, which are likely to slow the provision of capital.

 

  1. What Should I Consider Before I Prepare My Application?
  • Try not to rush your assessment of what you might need in terms of financial support;
    • We understand that the Scheme is available for at least the next 6 months and the level of funding to be made available is not capped nationwide by the Government – you have time if your cash flow can support;
    • Take your time to assess what your business might need to sustain itself through the not just the immediate financial impact of COVID-19 but the longer-term consequences;
  • We recommend you review our Business Planning and Short Term Funding Requirements notes included within our 18th March 2020 Advisory Note.
  • Think about taking advice to stress test your assumptions and projections before committing the application to the Bank and the Credit Process Review;
  • Remember that this is a loan application – as such the loan has to be repaid
    • It is clear is that the banks will want to see evidence that the business in normal trading circumstances will be able to service the debt.

 

  1. I Want To Prepare My Application Now – What Do I Need To Consider?
  • Purpose of the Loan
    • CIBL can only be offered to cover for business purposes a short term period of disruption arising directly from COVID-19;
    • Therefore you need to explicitly identify how COVID-19 has damaged your short term business model;
    • You will need to identify
      • What the purpose of the facility is (short term cash flow/longer-term cash injection);
      • How the funds will be used to protect your business.
    • Lending Assessment
      • The Banks are required to undertake a lending assessment, this will involve the provision of:
        • Up to date financial information (as detailed below); plus
        • They will need you to provide details of how you have reacted to the challenges presented to sustain your business through the duration of the Pandemic;
        • Based upon the information that you supply your manager will prepare his assessment of the loan requirement in order to support the application to the Bank for Credit purposes.
      • Minimum Financial Information Required
        • A copy of your most recent set of full financial accounts for the business, noting
          • Initial indications are that the 2019 accounts will be used as a barometer of the maximum loan that can be made under the scheme;
          • We understand that the maximum loan will be the higher of (1) 25% of reported turnover or (2) 200% of wage costs
        • Up to date, Management accounts to include Profit & Loss plus Balance Sheet (print outs from your accounting software will suffice);
        • Statement of Assets, Liabilities, Income & Expenditure (SALIE)
          • An example is uploaded to our website.
        • Additional Information to Support Application
          • On what basis has the amount of loan been calculated?
            • Has this been based on existing (pre virus) income and expenditure levels or future levels?
            • If future, what are assumptions are being used?
              • Specifically how long do you think that it will take you to return to “normalised” activity when the Pandemic is resolved?
            • Ideally, you should be supplying in our opinion:
              • Short term forecast (90 days) – we have published an example template for you to use if required;
              • Long term forecast (12 months preferably 24 months to demonstrate serviceability of new debt upon return to normalised trading conditions) supported by detailed assumptions made to validate the level of loan sought.
            • Specific information relating to 2019 statistics covering:
              • Annual Sales Turnover;
              • Annual Wage Bill;
              • Number of Employees
            • Details of existing sales contracts specifically:
              • Cancellations;
              • Short term COVID-19 implications;
              • Expectation of return to normal trading in the future

 

  • Details of measures taken to mitigate cash outflow in respect of other Government support in the form of:
    • Grants applied for;
    • Cancellation / postponement of rates;
    • VAT deferral;
    • Entry into Time to Pay arrangements (TTP’s), providing full particulars.
  • Details of measures taken to mitigate cash outflow in respect of day to day operational activities, such as:
    • staffing costs;
    • business premises costs;
    • stock; and
    • debt costs and repayments
  • What marketing activities and restructuring are you undertaking to:
    • Maximise any short term demand;
    • Retain customer base upon return to normalised trading conditions;
    • Expand service ranges and / or operations to cater for the loss of competitors
  • Any other details that you feel would support why the Bank should support your lending application

Barrons has put together a helpful guide to running your business during the coronavirus crisis.