All you need to know about applying for the Business Interruption Loan Scheme (CBILS)

Piers Linney is a non-executive director at the British Business Bank, a Business Leader Awards judge and he was previously also an investor on BBC’s Dragon’s Den. In this article, he explains how businesses can apply for the Business Loan Interruption Scheme, during the Covid-19 crisis. 

The coronavirus (Covid-19) pandemic has brought materially-slowed economic activity, and in some cases brought it to a standstill (eg hospitality).

Small businesses that lack the balance sheets required to weather the storm are going to be hit hard. The UK’s 5.7 million small and medium-sized businesses are the engine room of our economy, employing 13 million people – 60% of the private sector workforce.

The government has recognised that it is important to support small businesses and has taken action by launching the CBILS, which is operated by British Business Bank.

Given the urgent demand for funding, repurposing an existing framework has led to the rapid establishment of CBILS. It may not be right for your business, which may be extremely frustrating, but a framework is necessary as it is clearly impossible for any government to just hand out money without one. I know for a fact that the government and the team at British Business Bank worked around the clock to launch CBILS, which if no easy task given the relevant regulations that apply.

Any application process can be frustrating, especially when your house is literally on fire, but they are necessary and unavoidable.

Although it is more easily said than done, there is no point worrying, or becoming even more stressed about things that you can’t do anything about. So, it is best to work out if CBILS is applicable, what all of your financing options are generally, and what the relevant application processes are as fast as possible.

The CBILS framework has been based on the well-established Enterprise Finance Guarantee (EFG) scheme, which already has accredited lenders providing a range of qualifying products. The EFG scheme has been suspended until further notice.

In case you are reading this and have no idea about my connection to CBILS, I am a Non-Executive Director of the government-owned British Business Bank which runs the existing EFG scheme – now CBILS.

This quick – and, I hasten to add, personal – guide is designed to help you understand how CBILS works with some background to give context so that you can understand why it is structured as it is. Instead of recycling explanations, I have provided links to the official information that is now available.

What is British Business Bank and what does it do?

Let me clear one thing up, which is that the British Business Bank is not actually a ‘bank’ – in the regulated sense or one that you can approach directly to apply for a loan.

As well as debt, it is also a provider of equity capital to venture capital funds. British Business Bank has a range of formal objectives that revolve around making the finance markets work better for small businesses. Objectives include diversifying the available sources of equity and debt finance, helping to reduce the imbalances in access to finance for smaller businesses across the UK, encouraging and enabling small businesses to seek the finance best suited to their needs and helping small businesses to understand their financing options.

Capital is made available to carefully selected and accredited ‘delivery partners’ who then invest in, or lend to, small businesses. Capital is then made available via high street bank financial products (eg term loans, overdrafts, asset financing), peer-to-peer lenders (eg Funding Circle), new ‘challenger banks’, venture debt funds, independent asset finance providers, cash advance lenders, angel co-investment funds, venture capital funds and so on.

British Business Bank also operates the Startup Loan Scheme, which provides personal loans of up to £25,000 to start a business and which has provided £566 million of funding to over 69,500 UK businesses since 2012.

The Startup Loan scheme is a good example of a government-backed financial product that is made available to entrepreneurs who would otherwise not be able to raise the capital required to start a business.

CBILS is another example of a government-backed scheme to increase the capital available to small businesses. The government is making £1.2bn available to support lending to small businesses.

CBILS is based on the existing Enterprise Finance Guarantee (EFG) scheme

CBILS is a new scheme which leverages the legal framework, processes and accredited lender network of the EFG scheme.

The EFG scheme was established to provide a government-back partial guarantee to lenders to reduce the risk (perceived or otherwise) of banks making loans available to small businesses that the ‘market’ does not view as creditworthy or which cannot provide security. This became a serious issue after the 2008 credit crunch when loan finance for small businesses dried up. Since its launch in 2009, the EFG has supported the provision of over £3.3bn of finance to more than 35,000 smaller businesses in the UK.

The EFG scheme (currently replaced by CBILS) provided the lender with a government-backed guarantee of up to 75%, against the outstanding facility balance. This change in the risk profile can turn a ‘no’ from a lender into a ‘yes’.

In the 2020 Budget, the Chancellor announced the temporary ‘Coronavirus Business Interruption Loan Scheme’ (CBILS).

How to apply for a CBILS loan

If your business is in financial difficulty, you may be looking at funding options for the first time and the process can appear bewildering.

As well as the paperwork, you are likely to be concerned about interest costs, repayment dates, the impact of worsening short-term cash flow, fees, security, requests for personal guarantees and so on.

British Business Bank’s 40+ accredited CBILS lenders are there to help and the scheme has been designed to reduce the risk for small businesses and lenders in so far as it is possible.

CBILS is also available to sole traders and freelancers.

All of the information you require to work out whether CBILS is applicable and how you apply is available online or via your bank, which may or may not be an accredited lender. If your bank is not an accredited lender, you might want to suggest that they contact British Business Bank and apply.

It is important to understand CBILS still involves a loan application and borrowers always remain 100% liable for the debt. You have to be able to demonstrate that your business can support a loan, even with the protection of the CBILS. It is not a grant or a veiled hand-out.

It is also unlikely to be relevant to startups and very early-stage businesses with limited trading history – this is the reality as each lender will have established lending criteria.

The government has reduced the risk for lenders and small businesses, but the objective is not to facilitate loans that have little or no chance of ever being repaid. If lenders can offer finance on normal commercial terms they will continue to do so. You can’t use the CBILS to refinance an existing commercial loan.

The full details of the CBILS features can be read on the British Business Bank CBILS pages here, but the short version is as follows:

• Up to £5m loan facility with a term of up to six years.
• 80% guarantee of outstanding loan (for lenders).
• No fees for SMEs (lenders pay a small fee – required for technical reasons).
• Interest and lender-levied fees are paid by the UK government for 12 months.
• Term – up to six years for term loans and asset finance and three years for overdrafts and invoice discounting.
• Security – can be used for unsecured loans of up to £250,000. For larger loans, the lender has to show a lack or absence of security.
• Primary residential properties cannot be requested by lenders as security for loans under the CBILS.
• The borrower remains responsible for 100% of the outstanding balance of the loan.

Full details of the eligibility criteria for the CBILS can be read here, but, in summary, to be eligible, your business must:

• Be UK-based, with an annual turnover of no more than £45m.
• Operate within an eligible industrial sector (this has been widened to include a limited few who do not qualify).
• Have a borrowing proposal which, were it not for the COVID-19 pandemic, would be considered viable by the lender, and for which the lender believes the provision of finance will enable the business to trade out of any short-to-medium term difficulty.

Please note that receipt of de minimis state aid does not impact eligibility.

How long will it take to obtain a loan?

Each accredited lender has its own loan application process and criteria.

Lenders are aware that small businesses need to access funding as quickly as possible and the CBILS is a commercial opportunity for them to deploy capital and generate a return – otherwise, they wouldn’t entertain it.

CBILS exists to increase the likelihood of lenders making capital available to UK small businesses. They still carry some residual risk (the 20% not guaranteed by the UK government), which can add up at scale.

In order to start a conversation with an accredited lender, you can view a list of accredited lenders here. Click on each to access more information and contact details. Each lender will have their own process for you to follow.

CBILS is not a panacea for all small businesses facing financial difficulty and don’t forget that any application needs to include a credible plan that shows how you intend to stabilise your business and repay the capital and interest after the Covid-19 outbreak.