Mike Grayer – Corporate Finance Partner
John Founding – Corporate Finance Partner
Following recent announcements by the Government around funding support for businesses, we’ve taken the opportunity to review one of the key options open to SME businesses and summarise some thinking around the Coronavirus Business Interruption Loan Scheme (CBILS).
We understand that as the situation continues to evolve all businesses will need to adapt and in the first instance would strongly recommend all SME business owners speak to their banks to understand all options available to them.
Please do get in touch with us to discuss your concerns and the support we may be able to offer you and your business.
Please note that this article has been prepared as a guide and is for information purposes only. It is not intended as advice. The British Business Bank are in the process of defining and agreeing the scheme’s details, specifications and eligibility and therefore information is subject to change. More information is available via their website to reflect any potential changes to CBILS as and when they are published.
Details known to date
The facility is a Loan Guarantee, the bank loans the business [company] money with the Government providing the bank with an 80% Guarantee. Personal Guarantees will be required for 20% of the loan for loans over £250,000, but lenders cannot take business owners house as security. Below £250,000 the lender is not allowed to request a Personal Guarantee. It is not risk free to the bank but they are likely to be supportive where they can be.
What are the key criteria?
- Businesses with less than £45m turnover
- All businesses affected by Covid-19 are eligible except banks insurance and public sector businesses, only a very few exceptions
- A sound borrowing proposal (see actions below)
- Amount – £1,000 to £5,000,000
- Term – Up to 6 years
- Interest – Interest free for the first 12 months followed by sensible low rates
- Capital repayment holiday (at lenders discretion 12 months on offer from several)
- Fees – No arrangement fees are being levied
- Available through 40 lenders including the high street banks
- Administered by the British Business Bank
- These are being made available from 23 March 2020 initially for six months.
Large business’ CBILS
Although currently not available, here is a summary of key criteria and amounts (as currently understood):
- Businesses with turnover £45m – £500m
- Loans up to £25m
- Available if the business is unable to source regular finance
- The Government will provide the lender with an 80% Guarantee
Further details on this scheme have been promised by the Government – these are to made available later in April 2020.
Actions required to access the scheme
It is clear from our discussions with some major banks that the EFG principles are likely to be followed. Our understanding therefore, from previous experience of the EFG, is that a “sound borrowing proposal” will include (as a minimum):
- Latest (and up to date) Statutory Accounts
- Current Management Accounts
- Integrated (P&L/Balance Sheet/Cashflow) Forecasts, with written assumptions. Practically these assumptions are likely to:
- Predict/incorporate a period of distress caused by the Coronavirus. Typically we would expect this to be for a period of (say) six months
- A gradual reversing of fortunes, probably increasing in pace, to historic levels
- Plan to highlight other measures implemented (i.e. Time to pay re all taxes due – already being delivered through the Corporate Tax teams)
We’re aware that your internal capacity to create the above package may be hindered, our expert teams here at Menzies are here to help.
It’s key to remember however that you will need to keep your Accounts (Statutory and Management) up to date if you are going to take quick advantage of this measure.
Please note that the British Business Bank are in the process of defining and agreeing the scheme’s details, specifications and eligibility and therefore information is subject to change. More information is available via their website to reflect any potential changes to CBILS as and when they are published.