What is CBILS?
CBILS is a government backed loan scheme to provide financial support to small and medium businesses (SMEs) across the UK that are experiencing financial difficulties as a result of the COVID-19 outbreak. The scheme opened on 23 March 2020 and will run for an initial period of 6 months.
The scheme is delivered by accredited commercial lenders, backed by the government-owned British Business Bank (the BBB).
Businesses can borrow facilities of up to £5m available on repayment terms of up to 6 years, with the relevant lender receiving the benefit of a guarantee of up to 80% of the amount of the facility. The government covers any upfront fees and the interest payments for the first 12 months.
The borrower ultimately remains responsible for the repayment of any facility made available under CBILS.
Who is eligible to apply for a facility under CBILS?
An applicant is eligible for a facility under CBILS if:
- it is based in the UK
- has an annual group turnover of up to £45,000,000
- has a borrowing proposal which the lender would consider viable, if not for the COVID-19 pandemic
- it generates more than 50% of its turnover from trading activity
- it can self-certify that it has been adversely impacted by COVID-19, and
- it can show that it was not in financial difficulty as at 31 December 2019 and was not loss making at that time.
However, these criteria are evolving as the scheme develops. For example, the UK Government announced on 27 April 2020 that the viability tests will soon be simplified so that all banks will need to assess is whether a business was viable pre COVID-19.
It is important to note that even though a business may be eligible, the lending decision remains fully delegated to the lender making available the facility.
Are there any exceptions to eligibility?
The following businesses are not eligible to apply for a facility under CBILS:
- deposit taking banks, building societies and insurers writing contracts of insurance as principal
- public sector bodies
- further education establishments (if they are grant-funded), and
- state-funded primary and secondary schools.
Which lenders are making available facilities under CBILS?
Only accredited lenders can make available facilities under CBILS. There are currently 52 accredited lenders (including the "Big Four" banks: Barclays, HSBC, Lloyds and RBS), working to provide finance. They include:
- high street banks
- challenger banks
- asset based lenders, and
- smaller specialist lenders.
BBB are accepting applications for new lenders to become accredited. The list is therefore changing frequently as applications are processed and additional lenders become accredited.
Do you have to be an existing customer of an accredited lender to apply for a facility under CBILS?
This is not a requirement of the official eligibility criteria. However, each accredited lender is free to choose who to make facilities available to under CBILS.
Certain lenders – including HSBC and Bank of Scotland/ Lloyds – are limiting applications to their existing customers. If an applicant is turned down by one lender, they can approach other lenders within the scheme.
What types of financing are available under CBILS?
CBILS can be provided by lenders by way of:
- term loans
- invoice financing, and
- asset finance.
If the facility is provided by way of overdraft or invoice financing facilities, the term limit is reduced to 3 years. Not all accredited lenders provide all types of financing.
Are personal guarantees required?
Lenders cannot request personal guarantees for any loan under the scheme which is for less than £250,000.
Personal guarantees may be requested by lenders for facilities of £250,000 and above. Recoveries under such guarantees are limited to 20% of the outstanding balance of the CBILS facility after the application of the proceeds of business assets.
A principal private residence cannot be taken as security to support a personal guarantee or as security for a CBILS facility.
Do borrowers have to have insufficient security in order to be eligible for a facility under CBILS?
On first launching, the scheme required applicants to have insufficient security to access a commercial facility, in order to be eligible for a facility under CBILS. This condition has subsequently been removed.
Lenders that made available commercial facilities to borrowers who did not fulfil the insufficient security condition have been asked to migrate such commercial facilities to CBILS as soon as possible.
Where there is sufficient security available, it is likely that the lender will take such security in support of a CBILS facility. There is little guidance available currently as to how a secured CBILS facility will fit in a structure that already has existing secured debt.
Are any fees payable by the borrower in respect of the government guarantee?
No guarantee fee is payable by a borrower for a facility under the scheme. Lenders will pay a fee to access the scheme.
For the eligibility criteria, how are lenders calculating the £45,000,000 maximum group turnover?
In calculating group turnover for the purposes of the £45m maximum group turnover eligibility criteria, lenders are looking at the turnover of the applicant together with the turnover of any partners, linked enterprises, any partners of any linked enterprises, any enterprises linked to any applicant's partners and any enterprise linked to the applicant's linked companies.
BBB has provided guidance as to what they consider to be 'partners' and 'linked enterprises'.
They note that a partner business is one that has certain financial partnership with another, without one exercising effective direct or indirect control over the other. This is the case where both hold 25% or more of the capital or voting rights in each other, and are not linked to other enterprises.
Enterprises are considered linked when one holds a majority of the shareholders' or members' voting rights in another, or can appoint or remove a majority of the other's administrative, management or supervisory body, or there is a contract between them enabling one to exercise a dominant influence over the other, or can exercise sole control over a majority of shareholders' or members' voting rights in another. (They note a typical example is a wholly owned subsidiary).
If a business has a private equity investor, the business will be considered separately to the private equity investor and its other investments. The applicant business is treated as a stand-alone business from its private equity investor, and the other businesses such private equity investor may have invested in.
In determining eligibility, what does it mean to be a business in difficulty as at 31 December 2019?
A business in difficulty is one that as at 31 December 2019 had:
- accumulated losses of more than half of its subscribed share capital for limited companies, or for unlimited liability companies, its capital, or
- started, or had fulfilled the criteria to be put into, collective insolvency proceedings (as defined by the Commission Regulation (EU) 2015/848 of 20 May 2015, as opposed to the definition of insolvency proceedings under the Insolvency Act 1986 which would otherwise capture receiverships, members' voluntary liquidations and schemes of arrangement), or
- previously received rescue aid that was yet to be reimbursed (or, in the case of a guarantee, terminated), or
- received restructuring aid, and was still under a restructuring plan, or
- if not an SME (by virtue of the number of its employees etc), has fallen below solvency ratios for the previous 2 years; namely the book debt to equity ratio was greater than 7.5 and its EBITDA interest cover ratio was below 1.0.
If the applicant is part of a group, the criteria is looked at on a group basis.
The accumulated losses test does not apply if the business is an SME that on 31 December 2019 had existed for less than 3 years, or is a trust or unincorporated association.
Does income from property qualify as trading activity?
To be eligible for a facility under CBILS, an applicant must derive more than 50% of its income from trading activity.
A property company is eligible to apply for a facility under CBILS if it derives more than 50% of its income from commercial activity that generates turnover, whether or not this is with the intention of making a profit. This includes real estate SMEs that derive their income from property, including real estate investment companies and housebuilders.
Does an overseas parent or overseas business activity render a business ineligible for a facility under CBILS?
An SME which is foreign-owned is in principal eligible to apply for a CBILS, provided it is trading in the UK and has the core of its business operations in the UK (merely selling into the UK will not be sufficient to meet the eligibility criteria). Likewise, a foreign SME which is UK owned and which has its core business in the UK is in principle eligible. In each case the facility made available under CBILS must be used to support its business activity in the UK.
Export businesses are also in principle eligible to apply for a facility under CBILS. However, for loans under £30,000 the loan cannot be used for certain activities outside of the UK and an applicant must self-certify in such circumstances that the loan will not be used for such purposes.
Is there cross-over with the Bounce Back Loan scheme?
The Bounce Back Loan scheme was announced by the UK Government on 27 April 2020 as a separate scheme to CBILS. There will be some cross-over for businesses seeking to borrow £50,000 or less who may have a choice as to which scheme to apply under.
Full details of the Bounce Back Loan scheme are yet to be published, with the scheme due to launch on 4 May 2020. The main difference to CBILS is that the UK government will guarantee 100% of any Bounce Back Loans.