6 April 2020

Coronavirus Business Interruption Loan Scheme (CBILS) revamped

Content is correct at time of writing, 1:00pm on 6th April 2020.

How did CBILS work prior to 3rd April 2020?

Since CBILS was launched by Government on 23 March, it has attracted much comment from the business community. Although both lenders and borrowers are keen to ensure funds are efficiently disbursed to those that need it most, the scheme has proved difficult to work through.

Eligibility criteria have meant that businesses had to have been turned down for a loan on normal commercial terms. This requirement added an extra layer to the credit process and resulted in higher interest rates.

What changes have been made to CBILS as of 3rd April 2020?

Whilst we await details of the update to CBILS on the British Business Bank (“BBB”) website, the key overnight changes announced by Government are as follows:

  • A business is no longer required to have been declined a loan by a lender on normal commercial terms. It is hoped that this will speed up the application, lead to a reduction in some of the high interest rates previously reported and help funds flow faster.
  • As first reported late on 2 April, for loans of up to £250k, lenders are now prohibited from taking personal guarantees.
  • For loans above £250k, any personal guarantees taken will be limited to 20% of any amount outstanding on the CBILS loan.
  • A principal private residence cannot be used as security for either a personal guarantee or the CBILS loan itself.

What about businesses with a turnover greater than £45m?

  • Businesses with a turnover of between £45m and £500m will soon be able to access the scheme for the first time for loans of up to £25m (to be known as Coronavirus Large Business Interruption Loan Scheme (“CLBILS”)).
  • Unlike with the revamped CBILS scheme, under the proposed CLBILS scheme, other lending options need to have been exhausted first and the Government won’t cover the first 12 months’ interest and fees.
  • The CLBILS scheme is due to be launched later this month.
  • The lack of support to the mid-market was a much derided gap in Government support between the previous CBILS scheme and the CCFF scheme for larger corporates.

What type of guarantee is the Government providing?

It’s important to fully understand the true nature of the guarantee being offered. The Government doesn’t guarantee 80% of the loan. It merely guarantees the bank’s losses after normal recovery processes have taken their course.

Given the uncertainty over the length of the current lockdown, we believe that businesses should consider applying for a CBILS/CLBILS loan of an amount sufficient to tie them over for at least six months.

Further details of the CLBILS scheme to follow once the details have been published on the BBB website HERE.

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About the Author
Harry Bengough, Partner, Head of Banking and Finance Team

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