Coronavirus Business Interruption Loan Scheme and access to other funding


Alan Hamilton

Alan Hamilton

Corporate Finance Director


We've put together a summary of the bank’s approach to considering requests to provide additional debt facilities to support customers through the coronavirus crisis. 

Coronavirus Business Interruption Loan Scheme (CBILS)

The chancellor is extending the coronavirus loan scheme for small and medium businesses, with turnover of £45million or less, who have been affected by the disease.

CBILS was originally created for firms who were unable to secure regular commercial financing during the economic downturn of the virus. But now CBILS is being extended to all viable small and medium business who face financial difficulty during the COVID-19 pandemic.

However, pre and post-COVID-19 business viability still requires to be demonstrated by the borrower to the bank in order to be considered for CBILS.   Put simply a business will require to be able to demonstrate that pre-COVID-19 crisis it was generating sufficient cash in order to service the proposed new debt facility being requested to support it through the impact of COVID-19.

Whilst different lenders will approach the pricing of CBILS loans differently, from discussions with banks it would appear that an indicative margin range of 3.5% - 5.5% over base is likely to apply.

Unsurprisingly, banks are currently focusing their attention on their existing customers. CBILS applications will be available for existing bank customers only. Whether this will change going forward remains to be seen.

Coronavirus Large Business Interruption Loan Scheme (CLBILS)

It was announced on 3 April that the Government is putting in place the new CLBILS. This is similar to CBILS in that the government will provide a guarantee of 80% to enable banks to make loans of up to £25 million to firms with an annual turnover of between £45 million and £500 million. This will give banks the confidence to lend to a significantly larger number of businesses which are impacted by coronavirus but which they would not lend to through CBILS.

Loans backed by a guarantee under CLBILS will be offered at commercial rates of interest and further details of the scheme will be announced later this month.

Information a lender will require

In applying for a normal commercial loan, CBILS or CLBISL, a business will require to be able to demonstrate viability through the provision of the following information to its lender:-

  • Short term cash flow forecasts for at least 6 months and up to a year
  • Forecast Monthly Profit & Loss account and Balance Sheet
  • Up to date management information
  • Business Plan, including key assumptions made, a full risk assessment and details of contingency planning should the crisis last longer than anticipated.

Cash saving solutions

There are some potential cash saving solutions which businesses can put in place with their bank relatively quickly:-

1. Capital Holidays

The high street banks have all indicated a willingness to agree to a capital holiday of between 3 – 6 months for term debt products such as loans and asset finance. This should be progressed with the company speaking direct with their Relationship Manager, many of whom now have the ability to agree this themselves there and then rather than seek credit approval.

2. Trade Finance Facilities

Lenders are able to consider extend payment terms under trade finance facilities to assist with cashflow.

3. Company Credit Cards

Lenders may be happy to consider increasing the available limits on these and payment terms.

Interest Holidays

This is more difficult for the banks to agree to as a result of what the banks refer to as forbearance. Where interest is not paid and simply rolled up, this requires the bank to account for the loan in a higher category of risk which ultimately has cost of capital implications for the lender.

Points to Note Regarding CBILS

Personal Guarantees:

At the discretion of the lender, CBILS may be used for unsecured lending for facilities of £250,000 and under.

For facilities above £250,000, a number of lenders have been requesting personal guarantees from directors of limited companies looking to borrow under the scheme. The extent to which a PG is required will be determined by the level of security made available by the business. An individuals Primary Residential Property (PPR) cannot be taken as security under the scheme.

The Government announced on 3rd April that, for loans over £250,000, PG’s will be limited to just 20% of any amount outstanding on the CBILS lending after any other recoveries from business assets.  This will apply to those loans already made available under the scheme.

RBS have recently stated that they would not look to put in place PG’s under CBILS.

We wait to hear at this stage what the potential for PG’s under CLBILS will be.

Private Equity

There is a degree of inconsistency across the banks in approach to businesses which are majority owned by Private Equity (“PE”) and whether they can qualify for CBILS.

Some lenders such as Barclays will not allow CBILS to be used to support PE. Their logic seems two-fold: 1) where there is majority PE ownership of a business, Barclays would look to the combined turnover of a PE’s portfolio (which in many instances will take it above the £45m Sales threshold; and 2) they would wish to explore fully with the PE their ability to either put in further funding themselves or to provide a guarantee to the bank, in which case the loan application would likely be considered via BAU.

The other mainstream banks have indicated that they are either still considering what their approach should be with regard to PE and that for now they would look at these on a case by case basis. However, point 2) above is a key consideration for them.

Summary

The key points to takeaway from this are:

  • Businesses who turnover £45m or less can now look to access to further funding under CBILS.
  • Businesses with turnover between £45m and £500m will be able to access funding under CLBILS. Further details on how this scheme will operate will be announced later in April.
  • There are also some quick fix solutions available to businesses from their banks in assisting cash flow
  • Providing Lenders with the detailed information as outlined above will be essential in order to be considered for funding
  • Lenders focus will be on supporting existing customers

As always the Johnston Carmichael team are here to help and support you. If you'd like to chat about any of the above points or you would like assistance having these conversations with your bank, we're here for you. Get in touch with me Alan Hamilton on alan.hamilton@jcca,co.uk