What does the CBILS rule change mean for your business?

Following the news the British Business Bank (BBB) has amended the Coronavirus Business Interruption Loan Scheme (CBILS), Gregory Taylor, Partner and Head of Financial Solutions at MHA MacIntyre Hudson, says the change gives lenders scope to look under the hood of young fast-growing SMEs and make lending decisions based on the strength of the company.

Changes to the BBB’s rules for administering CBILS loans make the scheme less arbitrary and could be a game-changer for a certain type of SME. Until this week an SME was classed as an ‘undertaking in difficulty’ if by deducting accumulated losses from its reserves it was left with a negative amount greater than half of its subscribed share capital, as at December 2019. Any SME classified in this way was barred from accessing CBILS, although SMEs less than three years old were exempt from this rule.

The rule was untenable as it left many good businesses, which regular banks would usually have helped based on their own lending criteria, unable to access much-needed funds. An EU rule change has been the primary driver for this rethink although the UK government may have got round to revising it themselves eventually.

The definition of an ‘undertaking in difficulty’ hit fast-growing businesses between three and five years old especially hard. These companies were too old to be exempt but still too young to have started to offset their start-up costs with profits. Fast-growing businesses frequently carry a lot of debt as they need working capital to fuel the business, and this can have a temporary detrimental effect on the year-end accounts. Lots of good companies were finding themselves in the ‘undertaking in difficulty’ category and unable to access CBILS.

From 30 July 2020 SMEs with fewer than 50 employees and less then £9m turnover will not be considere an ‘undertaking in difficulty’ for the purposes of the scheme, unless they are subject to insolvency proceedings or in receipt of certain forms of aid.  The change means lenders can now look behind the numbers and take view of a business in the round.

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