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Good morning. Today we’re looking at reports that many businesses are facing problems accessing the Coronavirus Business Interruption Loan Scheme (CBILS).
These loans are available to SMEs that are losing revenue or having cashflow problems because of the COVID-19 outbreak. The scheme is operated by the British Business Bank via about 40 accredited lenders.
Lenders can offer businesses with up to £5 million via term loans, overdrafts, invoice finance or asset finance. While borrowers remain fully liable for the debt, the government provides lenders with a guarantee of 80% on each loan (subject to pre-lender cap on claims). The government will also make a Business Interruption Payment that covers the first 12 months of interest payments and lender-levied charges.
Your business is eligible for CBIL if it is UK-based and its turnover is £45m or lower.
What are the problems with the Coronavirus Business Interruption Loan Scheme?
Many businesses are currently in urgent need of funds. The BBC reports today that “nearly a fifth of all small and medium-sized businesses in the UK are unlikely to get the cash they need to survive the next four weeks.” This is based on research that estimates that between 800,000 and a million businesses may have to close.
If you read the BBC report, you’ll discover that many businesses are facing problems accessing the scheme. For example:
- Some approved lenders are charging interest rates of up to 30%
- Businesses are being told they need to wait a month for the money
- Firms wanting to borrow more than £250,000 are being asked for personal guarantees – putting their own assets on the line.
Some of these problems are due to the way the CBILS has been designed. In particular:
- Lenders are obliged to make sure that borrowers can’t provide security before making loans of over £250,000 under CBILS
- If lenders can offer finance on normal commercial terms without making use of CBILS, they will do so.
On the positive side, primary residential property can’t be used as security under CBILS, meaning no-one should be asked to risk their home.
Calls to drop requirements for personal guarantees
If you have been having problems accessing finance under CBILS because you don’t want to risk your own assets, there may be a glimmer of hope. Yesterday, This is Money reported that the Institute of Directors is pushing for lenders to drop requirements for personal guarantees. Some lenders are already making changes. After criticism that it was offering businesses its own, more expensive loans – often using a borrower’s main home as collateral – Lloyds has now said it has stopped demanding personal guarantees on new loans while CBILS is running. This includes its own loans too.
I can’t get a suitable loan. What should I do?
At this stage, the best advice is to research which lenders require personal guarantees and which don’t. To help you, accredited CBILS lenders can be found on this page.
This may not speed up the time in which you receive your loan, but it could increase the likelihood you find a deal that’s suitable for your business.
If your business is struggling, also remember that there are other support packages out there. Check out our COVID-19 advice page for SMEs for more information or get in touch with one of our accountants today. We’d be very happy to help.
About Jon Pryse-Jones
Since joining THP in 1978, Jon Pryse-Jones has been hands on with every area of the business. Now specialising in strategy, business planning, and marketing, Jon remains at the forefront of the growth and development at THP.
An ideas man, Jon enjoys getting the most out of all situations, “I act as a catalyst for creative people and encourage them to think outside the box,” he says, “and I’m not afraid of being confrontational. It often leads to a better result for THP and its clients.”
Jon’s appreciation for THP extends to his fellow team members and the board. “They really know how to run a successful business,” he says. He’s keen on IT and systems development as critical to success, and he continues to guide THP to be at the cutting edge and effective.