CBILS – A Definitive Guide

What is it?

  • CBILS – “Coronavirus Business Interruption Loan Scheme”
  • A variation of the existing Enterprise Finance Guarantee scheme (EFG) offering finance backed by a Government guarantee. 
  • Available for UK businesses (companies, sole traders, partnerships and other commercial entities) with up to £45m turnover, on borrowing between £50,001 to £5m, to replace lost or deferred revenues due to the pandemic, and for companies with turnover between £45m and £500m, loans of up to £25m.
  • Each applicant must pass a “Borrower Viability Test”
  • For borrowing requirements £50k the “Bounce Back Loan” (BBL) is available, and for new startups, the British Business Bank’s Start-up Loan Facility may be more appropriate.
  • Up to six years repayment for loans and asset finance, and up to three years for overdraft and invoice finance. 
  • Interest-free for the first 12 months (The Government will pay the interest to the bank).
  • 80% is guaranteed to the bank, the borrower remains 100% liable for the debt to the bank.
  • Free of all application fees. The lenders must pay the fees to enter the scheme. 
  • For borrowing up to £250k the lender may choose not to use the guarantee scheme if adequate security based on business assets already exists. 
  • PG’s are banned on loans up to £250k. PG’s on loans over this amount are at the lender’s discretion. However, this cannot include your personal residence and is limited to the remaining 20% of any unpaid loan.
  • You must demonstrate in your borrowing proposal that were it not for the Covid-19 pandemic, your business would be considered viable by the lender, and that the borrowing will enable you to trade out of short-to-medium cash shortfalls. 

What is the “Borrowers Viability Test”

  • A business may be excluded if it is deemed to be a “business in difficulty” at 31-12-2020, as defined by EU and domestic law as follows:
    • For businesses trading for three years or more on 31-12-2019, accumulated losses cannot be more than 50% of the companies subscribed share capital.
    • Where the undertaking is either subject to insolvency proceedings or fulfills the criteria under its domestic law for being placed into insolvency proceedings at the request of the creditors. I would interpret this as trading whilst insolvent, ie its current third party creditors (excluding the Directors Loan Account) exceed its current liabilities. 
    • For undertakings that are not SME’s for the past two years 
      • Book debt/Equality ratio cannot be greater than 7.5, and
      • EDITDA interest cover cannot be less than 1.0.
    • Any loan cannot be greater than:-
      • 25% of turnover or
      • 2x annual wage costs
      • Liquidity needs for the next 18 months. 

What are the individual bank’s decision making criteria? – all banks have subtle differences – 

  • The offer of capital repayments holidays during the crisis?
  • The type of finance available (overdraft, loan, invoice finance or asset finance)?
  • The format of information application must contain?
  • The calculated borrowing criteria for viable business loans (e.g. the higher of 25% of turnover or 2x annual wages costs)?
  • Whether you can exchange an existing EFG loan for a CBILS loan 
  • The priority of normal bank lending over a CBILS loan?
  • They will only make offers to existing clients?
  • They require an “all-asset debenture” over the business assets?

Other points to note

  • Application information – most lenders will require a cash flow forecast covering the downturn period and subsequent return to normal trading. This should be a minimum of 12 months. This should be accompanied by your last filed annual financial statements, and year to date management accounts immediately before the pandemic (i.e up to 29-02-2020). Some banks are now providing application forms, others are by email submission with a brief narrative business plan as to the effect of the pandemic on your cash flow, and your predicted recovery.
  • Start-ups – if you are a new startup (less than two years trading) a British Business Bank Start-Up Loan may be more appropriate. 
  • Availability – the scheme will be open for an initial six months, and extended should the effects of the pandemic continue beyond September.
  • Types of business – available to all sole traders, partnerships, LLP’s and other legal entities carrying out business activities as long as 50% of their income is generated from trading activity.
  • Other forms of Government aid – do not prevent you from applying for a loan, but must be taken into consideration in your cash flow forecasts (eg business rates relief).