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Has your business been rejected for CBILS, the government backed Coronavirus Business Interruption Loan scheme? If so, rule changes that come into force tomorrow (30 July 2020) may mean that you could be reconsidered.
CBILS is a scheme that provides loans to companies that are losing revenue and cashflow because of the COVID-19 pandemic. It is operated by the British Business Bank via a network of some 90 accredited lenders. Lenders can provide struggling firms with up to £5 million in finance in the form of term loans, overdrafts, invoice finance or asset finance. While you, as borrower, remain fully liable for the debt, the government guarantees loan repayments for the lender. For loans under £250,000, personal guarantees are no longer required.
So what are the changes? In brief, if your CBILS application failed because a lender thought you were a ‘business in difficulty’, you may benefit.
How does CBILS define a business in difficulty?
Up until now, the CBILS scheme has had one set of criteria used to define a ‘business in difficulty’. These were designed to spot businesses that were in financial trouble before the pandemic struck – and exclude them from the scheme.
The criteria were used to identify any business that, as of 31 December 2019 had:
- Accumulated losses of more than half of its subscribed share capital (for limited companies) or its capital (unlimited liability companies); or
- Begun, or fulfilled the criteria for, collective insolvency proceedings; or
- Received rescue aid that was yet to be reimbursed (or, in the case of guarantee, terminated); or
- Received restructuring aid and was still under a restructuring plan; or
- (Where it had not met the SME criteria) had fallen below solvency ratios for the previous two years.
What has changed if you’ve been rejected?
If your business has more than 50 employees and / or more than £9 million annual turnover, then nothing has changed for you. For the purposes of CBILS, your annual balance sheet is subject to the ‘undertaking in difficulty’ test as defined by the European Union. (It’s not a short read, but if you want to take a look you can find a PDF copy here).
However, if your firm has under 50 employees or turns over less that £9 million, recent changes in State Aid Law have narrowed the ‘undertaking in difficulty’ test. In a nutshell, your business will only be considered as being in difficulty if (as of 31 December 2019), it was:
- Subject to collective insolvency procedure under national law, or
- In receipt of rescue aid (which has not been repaid) or restructuring aid (and still subject to a restructuring plan.
The main impact of these changes will be to increase access to CBILS for SMEs. So, for example, if you have been rejected for CBILS because you accumulated losses of more than half your subscribed share capital, you can apply again from 30 July 2020.
Remember, though, that even though the scheme is government backed, you still remain liable for any loan you take out. If you believe you will have difficulties repaying it, you might want to look at other options such as a smaller Bounce Back Loan.
As always, if you are THP client and you are facing problems or simply need some advice, please get in touch. Your account manager will be very happy to talk through your circumstances and options.
About Ben Locker
Ben Locker is a copywriter who specialises in business-to-business marketing, writing about everything from software and accountancy to construction and power tools. He co-founded the Professional Copywriters’ Network, the UK’s association for commercial writers, and is named in Direct Marketing Association research as ‘one of the copywriters who copywriters rate’.