Coronavirus Business Interruption Loan Program (CBILS) – FAQ
What is CBILS?
CBILS is a government-backed loan program to provide financial support to small and medium-sized enterprises (SMEs) across the UK facing financial hardship due to the COVID-19 outbreak. The device opened on March 23, 2020 and will run for an initial period of 6 months.
The program is implemented by accredited commercial lenders, backed by the government-owned British Business Bank (BBB).
Companies can borrow facilities of up to £ 5million available on repayment terms of up to 6 years, with the relevant lender being guaranteed up to 80% of the amount of the facility. The government covers all upfront costs and interest payments for the first 12 months.
The borrower remains ultimately responsible for repaying any facility made available under the CBILS.
Who is eligible to apply for a facility under CBILS?
An applicant is eligible for installation under CBILS if:
- he is based in the UK
- has an annual group turnover of up to £ 45,000,000
- has a loan proposal that the lender would consider viable, if not for the COVID-19 pandemic
- it generates more than 50% of its turnover from the trading activity
- he can self-certify that he has been negatively affected by COVID-19, and
- it can show that it was not in financial difficulty as of December 31, 2019 and that it was not in deficit on that date.
However, these criteria change as the system evolves. For example, the UK government announced on April 27, 2020 that viability testing will soon be streamlined so that all banks will have to assess whether a business was viable before COVID-19.
It is important to note that while a business may be eligible, the lending decision remains fully delegated to the lender providing the facility.
Are there any exceptions to eligibility?
The following companies are not eligible to apply for a facility under CBILS:
- deposit banks, real estate companies and insurers taking out insurance contracts as principal
- public sector organizations
- higher education institutions (if subsidized), and
- state-funded primary and secondary schools.
Which lenders make facilities available under the CBILS?
Only approved lenders can make facilities available under the CBILS. There are currently 52 accredited lenders (including the “Big Four”: Barclays, HSBC, Lloyds and RBS), working to provide finance. They understand:
- main street banks
- competing banks
- asset lenders, and
- small specialist lenders.
BBB accepts applications for accreditation from new lenders. The list therefore changes frequently as applications are processed and other lenders are accredited.
Do you already have to be a client of an approved lender to apply for a facility under the CBILS?
This is not a requirement of the official eligibility criteria. However, each accredited lender is free to choose to whom to make facilities available under the CBILS.
Some lenders, including HSBC and Bank of Scotland / Lloyds, limit applications to their existing customers. If an applicant is refused by a lender, they can turn to other lenders within the program.
What types of funding are available under CBILS?
CBILS can be provided by lenders through:
- term loans
- invoice financing, and
- asset financing.
If the facility is provided by means of overdraft or invoice financing facilities, the term is reduced to 3 years. Not all approved lenders offer all types of financing.
Are personal guarantees required?
Lenders cannot ask for personal guarantees for a loan under £ 250,000 under the program.
Personal guarantees can be requested by lenders for facilities of £ 250,000 and over. Recoveries under these guarantees are limited to 20% of the outstanding balance of the CBILS facility after the allocation of the proceeds from the assets of the company.
A private principal residence cannot be taken as a guarantee to support a personal guarantee or as a guarantee for a CBILS installation.
Do borrowers need to have insufficient security to be eligible for a facility under CBILS?
When first launched, the program required applicants to have insufficient security to access a commercial facility, in order to be eligible for installation under CBILS. This condition was subsequently removed.
Lenders who have made business facilities available to borrowers who did not meet the unsecured condition were urged to migrate these business facilities to CBILS as soon as possible.
When sufficient collateral is available, it is likely that the lender will take such collateral in support of a CBILS facility. There is currently little guidance on how a secured CBILS facility will fit into a structure that already has existing secured debt.
Are there any fees to be paid by the borrower under the state guarantee?
No guarantee fee is payable by a borrower for a facility under the plan. Lenders will pay a fee to access the scheme.
For the eligibility criteria, how do lenders calculate the maximum group turnover of £ 45,000,000?
In calculating the group turnover for the purposes of the eligibility criteria of the maximum group turnover of £ 45million, lenders look at the applicant’s turnover as well as the turnover of any partner, related company, partner of any related company, company related to a partner and any company related to the related companies of the applicant.
BBB has provided advice on what they consider to be “partners” and “related businesses”.
They note that a partner company is a company that has a certain financial partnership with another, without one exercising effective direct or indirect control over the other. This is the case when they both hold 25% or more of each other’s capital or voting rights and are not linked to other companies.
Companies are considered to be related when one holds the majority of the voting rights of shareholders or partners in another, or can appoint or dismiss the majority of the administrative, management or supervisory body of the other. , or if there is a contract between them allowing to exercise a dominant influence over the other, or can exercise exclusive control over the majority of the voting rights of shareholders or members in another. (They note that a typical example is a wholly owned subsidiary).
If a company has a private equity investor, the company will be considered separately from the private equity investor and its other investments. The applicant company is treated as a stand-alone company by its private equity investor, and other companies in which this private equity investor may have invested.
To determine eligibility, what does it mean to be a company in difficulty on December 31, 2019?
A company in difficulty is a company which on December 31, 2019 had:
- cumulative losses of more than half of its subscribed capital for public limited companies, or for unlimited liability companies, its capital, or
- initiated, or had fulfilled the criteria to enter collective insolvency proceedings (as defined by Commission Regulation (EU) 2015/848 of 20 May 2015, as opposed to the definition of insolvency proceedings in under the Insolvency Law of 1986 which would otherwise encompass reorganizations, voluntary liquidations of partners and schemes of arrangement), or
- already received rescue aid which had not yet been reimbursed (or, in the case of a guarantee, terminated), or
- received restructuring aid and was still subject to a restructuring plan, or
- if it is not an SME (due to the number of its employees, etc.), has fallen below the solvency ratios in the last 2 years; that is, the book debt to equity ratio was greater than 7.5 and its EBITDA interest coverage ratio was less than 1.0.
If the candidate is part of a group, the criteria are reviewed as a group.
The cumulative loss test does not apply if the business is an SME that as of December 31, 2019 had been in existence for less than 3 years, or is an unincorporated trust or association.
Is income from property considered a commercial activity?
To be eligible for a facility under the CBILS, an applicant must derive more than 50% of its income from commercial activity.
A real estate company can claim a facility under the CBILS if it derives more than 50% of its income from a commercial activity that generates turnover, whether or not it is profit-making. This includes real estate SMEs that derive their income from real estate, including real estate investment companies and home builders.
Does a parent company abroad or a business activity abroad make a company ineligible for a facility under CBILS?
A foreign-invested SME is in principle eligible to apply for a CBILS, provided that it operates in the UK and has its core business activities in the UK (mere sale in the UK is not will not be sufficient to meet the eligibility criteria). Likewise, a foreign SME owned by the United Kingdom and having its main activity in the United Kingdom is in principle eligible. In each case, the facility made available under CBILS must be used to support its business activity in the UK.
Exporting companies are also in principle eligible to apply for a facility under the CBILS. However, for loans below £ 30,000 the loan cannot be used for certain activities outside UK and the applicant must self-certify in such circumstances that the loan will not be used for these purposes.
Is there a crossover with the Bounce Back loan program?
The Bounce Back Loan Program was announced by the UK Government on April 27, 2020 as a separate program from CBILS. There will be some crossover for companies looking to borrow £ 50,000 or less who may have a choice as to which scheme to apply to.
Full details of the Bounce Back loan program have not yet been released, with the program to be launched on May 4, 2020. The main difference with CBILS is that the UK government will guarantee 100% of all Bounce Back loans.