Richard Hayward is a WardWilliams partner who advise clients of the latest rules and regulations.
What's gone wrong? Coronavirus Business Interruption Loan Scheme
Updated 2 April 2020
It has been a mess so far. The Treasury are due to announce changes to the scheme this week. They cannot come soon enough.
Who is the British Business Bank?
The British Business Bank has the responsibility for operating CBILS.
From the website it describes itself as:
A government-owned business development bank dedicated to making finance markets work better for smaller businesses.
Unfortunately they are failing to fulfil this mission at a time when access to finance is critical for smaller business.
What is the purpose of CBILS?
CBILS should provide financial support to smaller businesses (SMEs) across the UK that are losing revenue, and seeing their cashflow disrupted, as a result of the COVID-19 outbreak.
This purpose is clear and follows the announcement made by the Chancellor. It should be a “slam dunk” for most UK businesses to demonstrate that they meet this basic criteria. Unfortunately, CBILS has to date failed in providing this financial support for many.
How is CBILS delivered?
British Business Bank operates CBILS via its group of over 40 accredited lenders. This list includes the big four banks and many other finance companies smaller businesses would be familiar with.
CBILS gives the lender a government-backed guarantee for the loan repayments to encourage (only) more lending.
So the scheme uses the existing distribution channels to get this government support to smaller businesses. These lenders are commercial businesses; immediately introducing a potential conflict of interest to the process.
Who is eligible for CBILS?
Again very simple.
- Be UK-based in its business activity
- Have an annual turnover of no more than £45 million
- Have a borrowing proposal which the lender:
- would consider viable, were it not for the COVID-19 pandemic
- believes will enable you to trade out of any short-term to medium-term difficulty
The borrower remains fully liable for the debt. So no one has proposed that smaller businesses get a free ride, just access to finance to protect viable businesses and the jobs that they provide.
So you had a decent business before the pandemic and the probability is that you will have one when we are through this. You will qualify for CBILS? Well probably NO.
Have the Big Four banks agreed that they will not take personal guarantees as security for lending below £250,000 under CBILS?
This is clearly stated on the British Business Bank website and all over the press. So the banks have stepped up to support small businesses? Well, NO.
The key phrase in the above is “under CBILS”. If you qualify for finance under CBILS, then those lenders should not ask for personal guarantees. However first you have to qualify under CBILS!
So where has it gone wrong?
The key statement is
If a lender can offer finance on normal commercial terms without making use of the scheme, it will do so.
But that should not be a problem? My business is losing revenue, and seeing its cashflow disrupted, as a result of the COVID-19 outbreak. The bank were reluctant to extend my facilities previously so why would they now be willing to do so?
However this is not is what happening at the moment. The banks are hiding behind this requirement to offer “normal” commercial terms which comes with high interest rates, high charges and a requirement for personal guarantees and other personal security.
This compares to a loan under CBILS where the Government will make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied charges.
Then the British Business Bank make the helpful comment!
If one lender turns you down, you can still approach other lenders within the scheme.
You do wonder what business world they are operating in.
If you have concerns or questions, please contact us on 01932 830664 or through your usual client partner contact. As further details are announced, we will keep you informed.
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