CBILS is a new scheme, announced by The Chancellor that can provide facilities of up to £5m for smaller businesses across the UK who are experiencing lost or deferred revenues, leading to disruptions to their cash flow.
The scheme will be run by the British Business Bank via 40 plus accredited lenders and will provide lenders with a government-backed guarantee of 80% of each loan, in a bid to continue to support SME’s within the UK during the Covid-19 pandemic. Interest rates on monies loaned under CBILS will be similar to current bank lending.
The scheme which went live yesterday on 23 March, will run for an initial 6 months. CBILS provides a wide range of business finance products, including term loans, overdrafts, invoice finance and asset finance facilities.
The maximum loan value under the scheme is £5million. The scheme replaces the existing £500m Enterprise Finance Guarantee (EFG).
Just like the EFG in the last recession, CBILS is designed to give lenders more confidence in making loans to small businesses that have insufficient security to meet lender’s “normal” criteria, and are suffering lost or deferred revenue as a result of Covid-19.
However, the CBILS differs from the EFG in that CBILS gives the Lender an 80% Government backed partial guarantee against the facility balance, subject to an overall cap. Under EFG this was 75%. In addition, there is no guarantee fee with CBILS and there will be no upfront cost to the business, along with lower initial payments. Lastly, EFG was only available for facilities considered viable under Lenders normal commercial terms (with no regard to the exceptional circumstances and impact of the Banking crisis).
It is worth noting that it may be possible to refinance your EFG, but it will be subject to the Lender’s discretion and the business meeting the CBILS criteria.
Terms of the scheme
The terms for the scheme are as follows:
- Loans and asset finance will be available on a term of 3 months – 6 years; or
- Up to 3 years for revolving credit facilities and invoice finance.
There will be no charge for the Guarantee. The Government will make a Business Interruption Payment to cover the first 12 months of interest payments and any Lender imposed fees. (The Government is also to waive the annual 2% charge under EFG for existing loans).
Lenders can lend up to £250,000 unsecured under the CBIL scheme. For amounts over this Lenders have to establish a lack of security being offered prior to the business using CBILS.
To be eligible for this scheme an SME must:
- Be based in the UK
- Have a maximum turnover of £45m p.a.
- Be in an eligible sector (this will include the vast majority of businesses. The excluded sectors are narrow).
- The business has had no state aid of 200,000 euros over the current and last 2 financial years. (It has been commented that the European Competition Commission may not be amenable to CBILS if it gives UK business an unfair advantage with such State Aid)
- The business does not meet the Lender’s normal criteria, but it is viable long term. In other words, were it not for the exceptional circumstances and impact of Covid-19 the business would be viable and can trade out of short term issues.
- All traditional forms of business entities are covered, including sole traders.
- The business must have a business bank account.
- Over 50% of the businesses’ turnover must come from trading activity so, like some tax reliefs this will not apply to “investment vehicles”.
Does CBILS breach European Competition laws?
It has been commented that the steps taken by the government may be in breach of European Competition laws, bearing in mind that we are still affected to a large extent by European rules during the Brexit transition period. However, the European Commission has published a Communication which confirms that member states can take action to support citizens and companies facing economic difficulties due to the Covid-19 outbreak. For example, wage subsidies and suspending taxes, supporting consumers for cancelled services or tickets that are not reimbursed by the provider and providing loans for acute cash flow problems or companies facing insolvency due to the Covid-19 outbreak.
How to apply
Although the scheme launched yesterday, there are currently no applications up and running. However, once applications open, you can apply for the scheme through the British Business Bank’s 40 plus accredited lenders and partners which are listed on this website.
When applying, businesses should first ensure that they approach their own provider, via the lender’s website. If their provider will not provide them with the finance they need they should consider approaching other lenders.
How Blaser Mills Law can help your business
We will continue to keep our website fully updated with the latest Covid-19 developments, to enable you to make strategic business decisions in these unprecedented times. If you would like more information on CBILS, or assistance in your application, please contact Robert Cain on 01494 478678 or at email@example.com