CBILS: Should this be seen as the lender of last resort?

2 April and the Coronavirus crisis continues to wreak havoc, with many small businesses facing significant cash flow problems very quickly.

The British Business Bank launched the Business Interruption Loan Scheme on 23 March 2020, to support businesses with a turnover of no more than £45 million per year. The government will provide lenders with a guarantee of 80% on each loan. This applies for loans of up to £5m in value and for up to 6 years and no interest will be charged for the first 12 months. The scheme is now open for applications and businesses are encouraged to talk to their bank or one of the 40 accredited finance providers. Most of the major high street banks are on this list of 40 providers.

However, some of our small business clients are reporting that they are having problems with their applications and questions are being asked whether the banks are rolling out CBILS in the spirit in which the Chancellor announced the scheme

Here is a short overview of the real world position for many small businesses

  • For the first week after the launch, CBILS could only be used where other security was unavailable and conventional bank funding was not on offer.
  • [Update 3 April] This was a big hurdle and on 3 April, following heavy criticism, this requirement was relaxed.
  • In reality, Banks may still pursue normal lending routes first, relying on available security, before falling back on the 80% government security and this may still prove to be the line of least resistance for many businesses.
  • Loans of up to £250k are apparently relatively straight forward, above that they are more complex
  • Don’t ask for more than £250k unless you really need it now
  • Don’t ask too soon, CBILS will be around until September
  • CBILS is fee, interest and capital repayment free for the first year, but is then repayable over the following 5 years
  • CBILS is a loan and it has to be repaid – it is a loan not a grant, so access grant funding first
  • Banks need to have visibility on how repayments will happen – not surprisingly, most businesses are not factoring this in at the moment
  • When the bank ask for cash flow forecasts, they are it would appear, looking for:
    • A simple cashbook style forecast, showing BF, CF balances each month, along with the main categories of inflows and outflows
    • This needs to be for 12 months
    • Showing the mitigating measures put in place – Furlough, Vat deferment, Time to Pay and cost cutting etc
    • Assuming the Job retention grant income comes in from May
    • And on the basis business starts to return to normal from June
  • The bank may require a debenture if one isn’t in place, but they probably cannot get the legal work done at the moment, so this may be added on as to be completed in due course
  • They are not apparently asking for new Personal Guarantees on the 20% – which is good news

The bottom line for our clients therefore is

  • Small business directors need to take a pragmatic view on payments to creditors
  • The normal rules on preferring creditors and insolvent trading may have to be relaxed – but this cannot be taken for granted

Don’t break the chain! Support other businesses just trying to get through this like you

Martin Gibbs is Dafferns’ Managing Partner – please get in touch if you need help or advice.