Update: HMRC has since confirmed to RW Blears on 24 March 2020 that CBILS funding will not be treated as a ‘relevant investment’, and so will not count towards companies’ annual £5m limit or lifetime £12m limit for EIS funding.

Announced as part of the Budget’s package of Covid-19 related defence measures, the Coronavirus Business Interruption Loan Scheme (“CBILS”), was accelerated into action by the Chancellor during Friday’s national briefing with the scheme now open to applicants as of today.

One of a number of measures drawn up by the Chancellor designed to try and inoculate the UK’s small and medium sized businesses from the effects of Covid-19, the combined stimulus was described as “unprecedented for a government of this nation”.

The CBILS alone comes with precedent in the form of the British Business Bank’s (“BBB”) long-running and successful Enterprise Finance Guarantee Scheme (“EFGS”), which it is temporarily replacing. The CBILS is a beefed-up version of the EFGS with certain hallmarks of the latter scheme either relaxed or bolstered, alongside the introduction of additional assistance.

This note provides a summary overview of the CBILS, its headline eligibility requirements, and considerations for prospective applicant SME directors.

As the CBILS is still very much in its infancy, we recommend regular reference to the BBB’s CBILS page for both companies and prospective accredited lenders as the process continues to develop over the coming weeks.

Scheme Overview

The CBILS, like its predecessor the EFGS, is intended to facilitate the provision of business finance to smaller businesses. Where the EFGS has previously been administered in relative times of plenty, CBILS is being introduced in a period of acute economic downturn.

The CBILS works by providing an accredited lender with a government-backed 80% guarantee against amounts it lends between £1k and £5m.

If the lender decides that it can provide the loan to the applicant company on normal commercial terms without the need to make use of the CBILS then it will do so, however where the credit decision might otherwise have been a “no”, the CBILS will enable lenders to instead choose to approve such applications on the basis that only 20% of their capital lent is then at risk.

Loans do not come direct from the BBB and companies wishing to apply should do so directly with one of the forty participating lenders. The latest list can be found here. Finance on offer includes term loans, overdrafts, asset finance and invoice finance, depending on the choice of lender.

The first twelve months’ of interest and fees on any loan administered under the CBILS will be covered by the Government. Rates thereafter for loans with a maturity longer than twelve months will be as offered by each participating lender.

No guarantee fee is payable by companies who access the CBILS (a departure from the EFGS).

Borrower Eligibility

The CBILS is available to small companies which meet the following two criteria:

• UK-based in business activity, with an annual turnover of no more than £45m; and
• have a borrowing proposal which, were it not for the current pandemic, would be considered viable by the lender, and for which the lender believes the provision of finance will enable the business to trade out of any short-to-medium term difficulty.

Smaller businesses from any sector (save for some specific exclusions in the banking, insurance and public sectors) may apply for the full amount of the facility.

Considerations for Directors

Whilst the CBILS is a very positive measure taken by the Chancellor, this particular scheme is by no means ‘helicopter money’, and its usefulness to each small business in need of cash support will depend very much on those businesses’ specific circumstances. The following is an inexhaustive list of considerations for applicants:

• CBILS finance is not a grant and must be repaid on the terms of the loan agreed with the lender. Furthermore, it is the lender who is guaranteed, not the company as the borrower of the loan. The company is still obligated to contractually pay back 100% of all amounts associated with the loan and security may well be required for the 20% of loan capital which the lender is on risk for.
• Lending decisions are not made by the BBB and are fully delegated to the third party lenders. If the CBILS proves to be a very popular option for small companies, then those who can provide a sound borrowing proposal (i.e. full set of recent accounts, properly modelled forecasts, solid business plan) will be at the front of the queue.
• Those companies who already have some form of existing financing in place should first consult the terms of those documents to check whether they are restricted from applying for further finance, and if in doubt speak to their existing lender.
• As of the Chancellor’s most recent announcement, the CBILS is now just one of a number of options which small companies have at their disposal in an effort to help tackle their fixed overheads. Where the financial support needed is primarily down to the cost of a company’s payroll, the new Coronavirus Job Retention Scheme might be more suitable than the taking out (another) loan.

Interaction with EIS/SEIS

The EIS Association has today received an assurance from the BBB that all EIS and SEIS companies will qualify for the scheme which is good news.

We await a response from HMRC as to whether or not CBILS loans which are lent to companies in receipt of EIS/SEIS funding will count towards such companies’ annual £5m (or £10m in the case of knowledge-intensive companies) investment limit. We will update this article as and when we receive such response.

Prospective Accredited Lenders

The BBB is also accepting expressions of interest from new lenders seeking accreditation under the CBILS. Further information can be found here. The application process has been confirmed as similar to that under the EFGS and the expression of interest form available on the BBB website is currently in the same form as that for the EFGS.

If an application to be an accredited CBILS lender to small businesses may be of interest to you, please do feel free to get in touch with the team at RW Blears and we would be happy to assist you with the submission of your application.

23 March 2020
RW Blears LLP

Please note that this article has been prepared as a commentary, is solely for information purposes only and is not intended as advice. More information is available via the BBB’s website.