The coronavirus crisis continues to unfold, and many of our small and medium-sized business clients are facing a hugely uncertain future. We welcome the measures announced by government to help small businesses through this period but have concerns about whether the financial help is getting through fast enough to the businesses that need it so urgently.
Among the steps announced by the chancellor are the Coronavirus Job Retention Scheme, the deferral of VAT payments and a 12-month business rates holiday. One of the most significant announcements to date relates to the Coronavirus Business Interruption Loan Scheme (CBILS) offering loans of up to £5 million for SMEs through the British Business Bank. Here we look at how you can apply for this new loan and the conditions that might attach to it.
What Is The CBILS?
The new business loan is a temporary measure intended to help SMEs through the worst of the coronavirus crisis. It is accessed through one of 40 lenders (major banks and others). Importantly, the government-owned British Business Bank is backing the scheme.
Lenders can offer financial support of up to £5 million over six years in the form of loans, overdrafts and asset finance to businesses. For smaller businesses there is also the opportunity of a one-off payment to cover lending fees and interest fees for the first twelve months. To encourage lenders to release funds to SMEs the loans are guaranteed by the government.
Am I Eligible For The CBILS?
It’s important to remember that you will be fully liable for repayment of any CBILS loan. The government guarantee is for the benefit of the lender not the SME applying for the loan.
Each application must be underpinned by clear proof that the SME seeking the loan would, were it not for the coronavirus pandemic, meet the lender’s viability and lending criteria. Some of the other conditions for a CBILS-backed loan include the following:
- The application for a loan must be for business purposes
- The loan facility will be used mainly to support trading in the UK
- You must be a UK-based SME with annual turnover of up to £45m
- Your business must generate more than 50% of its turnover from trading activity
Is the CBILS Working?
It’s hard to imagine a time when the Exchequer was forced to come up with schemes of such widespread application in so short a timeframe. And there’s no doubt businesses need emergency finance. The CBI has indicated that in the past week 40% of businesses have sought some form of emergency finance from their bank.
The CBILS has come under scrutiny because some lenders sought personal guarantees from business owners as a condition of receiving a loan. Clearly this would have acted a brake on the entire scheme. Although banks cannot seek a guarantee over a main family home few of our clients would be prepared to endanger personal assets at a time when the market is so precarious. The big four banks have now agreed not to require personal guarantees on loans of up to £250,000, and there appears to be intense pressure on other lenders to do the same.
Given the urgency with which the CBILS scheme was introduced it’s perhaps inevitable that teething issues have arisen.
What Next?
As the CBILS scheme continues to evolve, we would advise clients to embrace the financial lifeline the scheme presents but to take extreme care with any application. We’ve heard of one business being refused a loan on viability grounds because they made a small loss in the last financial year. You should also examine the lending terms with great care – in particular any that relate to personal guarantees. It’s also worth exploring alternative avenues for financial help, including the others introduced by the government that we mentioned above. You may also wish to examine your contracts with suppliers and others to see of there is any way of reducing your contractual and financial liability at this time.
Contact Us
We know this is a stressful time for many of our business clients. If the coronavirus crisis has impacted your business and you need practical legal support we are here to help. You can contact Shubha Nath at Nath Solicitors in London on 44 (0) 203 670 5540 or use the covid19 emergency contact form to get in touch online.
