As coronavirus continues to cause disruption across the globe, the UK Government has announced various funding schemes to provide loans and grants to affected businesses as a way to deliver support through the crisis.
In this blog, we provide a breakdown of the latest updates on these schemes and support available so you can understand more about them and the potential eligibility of your business.
Any business owners experiencing cash flow difficulties or concerns, in the first instance should understand what banking support is available to them by contacting their relationship manager.
All banks are offering support where possible in a range of ways including:
– no arrangement fees for increased borrowing
– capital repayment holidays
– increased prepayments on invoice discounting facilities
– allowing customers to break fixed rate deposits to access funds
Speak to your bank to see what support might be available.
Coronavirus Business Interruption Loan Scheme (CBILS)
The Coronavirus Business Interruption Loan Scheme (CIBLS) offered by the British Business Bank (announced in the 2020 March Budget) is now available for application. Key details are as follows:
– This is a loan scheme, funding offered is not a grant
– The loans must be underwritten, and banks will need to ensure that businesses understand this and that they are ultimately responsible for repayments, despite the Government guarantee
– Serviceability will need to be demonstrated, the same for any request for additional funding from a bank
– As such, not all requests for funding under the scheme will be approved
Other useful tips for clients around managing cash flow include the following:
– Remember cash is king, prepare a short to medium-term cash flow forecast and update daily, block any unnecessary spending where possible
– Focus on your working capital requirements and expedite your debtor collection
– Use the forecast to establish what your cash burn is and the likely additional funding requirement over the next three months
– ‘I might need to borrow X’, compared to ‘how much can I borrow?’ is a more useful conversation starter with your bank
– Be proactive, speak to your bank and other funders, the more notice you can provide them of cash flow difficulties, the more likely they are to be able to assist you
– Potentially speak to alternative funders, although this may be more expensive debt, these funders may be able to turn around requests quicker and provide additional funding compared to traditional sources
– Investigate all Government support being offered, such as business rates relief, HMRC ‘time to pay’, cash grants, statutory sick pay relief and Government guaranteed loans (get in touch for further advice on this)
All banks are reminding customers to stay alert, as fraudsters may try to take advantage of the current situation, so be on the lookout for anything suspicious, including messages from your bank about coronavirus. Banks will never ask for PINs or other confidential information.
Please use this link to find the details of the CIBLS mentioned above. You can view the list of accredited lenders on the British Business Bank’s website here.
Further update from banks on CBILS
To further support businesses, Barclays announced on 24 April that they are extending their minimum lend on CBILS loans to £1,000 from May. This is great and welcome news for many businesses affected by COVID-19.
NatWest have also said they will be extending their minimum lend from £5,000 whilst Starling Bank already provide loans from £1,000 and overdrafts of £5,000.
It is expected that following these announcements other banks will also follow suit.
Amendment to CBILS criteria to support SMEs
The Chancellor recently revealed planned amendments to his emergency aid scheme for small businesses (SMEs) amid warnings of a surge in insolvencies as companies struggle to access funds quickly enough under the Coronavirus Business Interruption Loan Scheme (CBILS), outlined above.
There will be more detail to follow but it seems all SMEs will be eligible for the scheme, removing the need to prove that the business has been unable to secure regular commercial funding before it can apply for a CIBLS loan. The aim is to speed up the decision-making processes within the high street banks and approve loans more quickly so that companies do not run out of cash whilst waiting for an answer.
The Treasury is acting following numerous reports since the launch of CBILS that businesses are being denied loans through it or forced to use other standard SME loan products.
Viable businesses with a turnover of up to £45m should be able to access the scheme, which is interest-free and fee-free for the first 12 months.
It is understood that those pursuing a loan will still need to validate that their company was viable going into the crisis, and that they have the ability to repay the loan by the end of the term.
Personal guarantees on loans up to £250,000 are not required. For loans above £250,000, personal guarantees may be required at the lender’s discretion – please refer to the British Business Bank’s guidance on this.
This will be welcome news for many SMEs. Despite this, directors should be mindful of their duties/obligations when incurring new credit. The loosening of CBILS criteria does not necessarily mean that it would be appropriate for all businesses to utilise them.
The British Business Bank’s list of accredited lenders can be viewed here.
Relaxation of application requirements
On 29 April, further changes to the Coronavirus Business Interruption Loan Scheme (CBILS) were announced relaxing the requirements for applicants, meaning that eligible businesses should now be able to receive financial support more quickly.
In a joint statement delivered by UK Finance, the UK’s largest SME lenders (Barclays, Danske Bank, HSBC, Lloyds, NatWest, Santander and Virgin Money) said that to apply for funding, businesses will only be required to present information that they would reasonably be able to provide at speed, and rather than relying on forecasts and business plans, lenders will use their own information to approve applications.
This is welcome news for SMEs thinking of applying for the scheme or those already in the process of doing so, with support and funding now expected to be received much faster than originally thought.
What you will need to make an application for the CBILS
– Latest set of statutory and management accounts;
– A plan setting out how you will be able to trade out of the situation and how the loan will be repaid;
– Cash flow / Profit and Loss forecast for the next 12 months.
After discussions with most of the major lenders, we understand that providing the plan and forecast information will be critical.
It is important that borrowers can show that the funding requirement is necessary as a result of coronavirus, what steps have been taken to quantify the impact of the virus on their business and what they are doing to minimise this, for example time to pay arrangements with HMRC, rent deferrals and employee furloughing, etc.
Please visit our recent blog which covers in more detail some key things to consider when approaching your bank or applying for a loan under the CBILS.
Coronavirus Large Business Interruption Loan Scheme
The Chancellor recently announced a new scheme to assist larger businesses which have previously not been able to access funds through the above Coronavirus Business Interruption Loan Scheme (CBILS), which is limited to companies with a turnover below £45 million, or the Bank of England’s COVID Corporate Financing Facility (CCFF), aimed at the very largest businesses.
This scheme is open to businesses with turnover of between £45m and £500m, and will allow businesses to borrow up to £25m. The borrower will remain 100 per cent liable for the debt. The new scheme will support term loans, revolving credit facilities, invoice finance and asset finance facilities.
Like CBILS, the Government will provide a guarantee of up to 80 per cent to the lender, however, the interest will not be deferred (as it is under CBILS).
Further details in relation to the application process and the repayment periods have not yet been confirmed but it is expected to be launched on 20 April 2020.
If your business is eligible, it is recommended that you contact your lender to discuss any potential application.
Future Fund (convertible loans for innovative companies)
On 20 April, Rishi Sunak announced a “Future Fund” of initially up to £250m to provide UK-based innovative companies who are facing financing difficulties due to the pandemic with monies between £125,000 and £5m from the Government if the cash is at least matched by private investors.
These loans will convert to equity stakes — valued at a discount — if not repaid. The intention is to launch the scheme in May and it will be delivered in partnership with the British Business Bank.
The scheme will be open to those businesses who have been unable to access other Government business support programmes, such as CBILS, because they are either pre-revenue or pre-profit and typically rely on equity investment.
You are eligible for the scheme if:
– your business is based in the UK
– your business can attract the equivalent match funding from third party private investors and institutions
– your business has raised at least £250,000 in equity investment from third party investors in the last 5 years
Full eligibility criteria will be published in due course and the “loan” can only be used for working capital purposes, not for example the settlement of any existing debt.
Over the coming weeks the British Business Bank will work with the Government to provide details on how the scheme will operate and how businesses can apply.
This seems likely to go live sometime during May and there are a number of conditions which look likely to apply in addition to those listed above. We will be keeping an eye on the details of the Future Fund as these are announced over the coming weeks and updating this blog with any new information.
For further information about this recent announcement, see the Government’s official guidance here.
Bounce back loans
On 27 April, the Chancellor announced the launch of “quick and easy” bounce back loans to help small businesses hit by the coronavirus crisis with the Government guaranteeing 100% of the loans.
In response to criticism that it was taking too long for small firms to access much needed support via the CIBLS, the scheme will mean simpler applications with applicants potentially getting their money within 24 hours.
There will be no forward-looking tests of viability and no complex eligibility criteria with just a simple form for businesses to fill in.
The scheme is now open for application, with loans available up to a maximum of £50,000 or 25% of turnover. Businesses should approach their primary business bank to apply (application links for each bank can be found here).
Like CIBLS, the Government will pay the interest for the first 12 months. This news will be welcome for sole traders and smaller firms that have been struggling to access funding via the CIBLS and other means.
Get in touch
Our corporate finance specialists have many years of experience in raising debt and equity finance on behalf of clients. Please contact Jim Akrill using the button below for further advice on any of the above schemes, or support with preparing and managing your application.
This information is correct as of 5 May 2020. This blog is for general guidance only. Recipients should not act upon any of the information provided without seeking specific professional advice tailored to your circumstances, requirements or needs. Please contact PM+M before making any decisions based on any matters relating to this blog.