Improvements to emergency (CBILS) loan scheme

When the Government introduced the Coronavirus Business Interruption Loan Scheme (or CBILS) offering to guarantee 80% of loans made by banks, we hoped that this would make a real difference for desperate businesses looking to survive through this crisis. Although not a perfect solution, after all these loans will need to be repaid, they offer zero fees and the Government pays the first 12 months of interest, so they looked like a much-needed financial lifeline.

In practice, businesses have struggled to secure loans from CBILS, with only £90 million lent so far. The Treasury has reported that, out of 130,000 applications, only 1,000 have been granted. Certainly, the experience shared by my Corporate Finance peers, in a conference call late last week, mirrored this frustration across the UK. In fairness to the banks, their credit teams are no doubt inundated with applications and their people are suffering from the effects of COVID-19 just like the rest of us. Nothing is easy in these unprecedented times.

The Government has stepped in and introduced some welcome changes  to help drive up the scheme usage.

The key changes:

• Previously businesses needed to have been turned down for commercial lending before they would qualify for CBILS. This led to some opportunistic lenders offering ‘commercial’ loans with extortionate fees and interest charges. So, this requirement has now been withdrawn
• For CBILS loans of up to £250,000 banks will now be prevented from asking business owners to provide any personal security. For loans of more than £250,000 banks may ask for personal guarantees, but it must exclude their home and must be limited to 20% of the balance after business assets have been used as security
• Previously the scheme was only available for businesses with turnover of up to £45 million. This has been extended now, and businesses with turnover of £45 million to £500 million are able to borrow up to £25 million. Further details of this scheme are expected to be released shortly

We hope that these refinements will make a meaningful impact on the usage of CBILS, but note that the banks, quite understandably, will still want to see all the information they ordinarily need to assess a loan application. The extent of this will depend on the size of the loan but, according to the British Business Bank, these requirements are likely to include:

• Management accounts
• Cashflow forecasts
• Business plan
• Historic accounts
• Details of assets

As part of the CBILS application process, the banks will need to establish the viability of each business by reviewing two key areas:

1. Was the business viable before COVID-19? This is a review of historic accounts and management information
2. Will the business survive in the short to medium term with the CBILS funding in place? This will involve cashflow forecasting multiple scenarios, along with supporting written assumptions, and possibly a business plan to back it up

If you need any help with any of the above, particularly the preparation of cash flows and accounting information, please don’t hesitate to get in touch with your usual Larking-Gowen contact or send an email to enquiry@larking-gowen.co.uk.

You can find contact details are on the Our People section of our website.

James Lay