Government Launches Coronavirus Business Interruption Loan Scheme

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A range of schemes have been launched by the Government to support businesses during these extraordinary times.

As from today (23 March 2020) The Coronavirus Business Interruption Loan Scheme (CBILS) opens for applications and supports a wide range of business finance products, including term loans, overdrafts, invoice finance and asset finance facilities and can provide facilities of up to £5m for smaller businesses across the UK who are experiencing lost or deferred revenues, leading to disruptions to their cashflow.

Key features of the scheme include:

  • Up to £5m facility:
    • The maximum value of a facility provided under the scheme will be £5m, available on repayment terms of up to six years.
    •  
  • 80% guarantee:
    • The scheme provides the lender with a government-backed, partial guarantee (80%) against the outstanding facility balance, subject to an overall cap per lender.
    •  
  • No guarantee fee for SMEs to access the scheme:
    • No fee for smaller businesses. Lenders will pay a fee to access the scheme.
    •  
  • Interest and fees paid by Government for 12 months:
    • The Government will make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied fees [1], so smaller businesses will benefit from no upfront costs and lower initial repayments.[2]
    •  
  • Finance terms:
    • Finance terms are up to six years for term loans and asset finance facilities. For overdrafts and invoice finance facilities, terms will be up to three years.
    •  
  • Security:
    • At the discretion of the lender, the scheme may be used for unsecured lending for facilities of £250,000 and under. For facilities above £250,000, the lender must establish a lack or absence of security prior to businesses using CBILS. If the lender can offer finance on normal commercial terms without the need to make use of the scheme, they will do so.
    •  
  • The borrower always remains 100% liable for the debt.

Eligibility

To be eligible for a facility under CIBLS, your business must:

  • Be UK based in its business activity with annual turnover or no more than £45m
  • Have a borrowing proposal which, were it not for the COVID-19 pandemic, would be considered viable by the lender, and for which the lender believes the provision of finance will enable your business to trade out of any short-to-medium term difficulty
  • Smaller businesses from any sector can apply for the full amount of the facility.

A quick eligibility checklist for SMEs can be seen here

Accessing the Scheme?

CBILS is available through the British Business Bank’s 40+ accredited lenders, which are listed on the British Business Bank website here.

In the first instance, businesses should approach their own provider – ideally via the lender’s website. They may also consider approaching other lenders if they are unable to access the finance they need.

Legal Considerations

Whilst accessing the scheme will primarily involve support and collaboration with your financial advisors, there are a number of legal issues organisations will need to consider including;

  • How any new lending dovetails with your existing bank facilities
  • The bank’s security requirements
  • Board and shareholder approval processes for any new lending

Company directors need to be mindful at all times however that even in circumstances as extreme as those we are currently facing they still owe duties not only to the company but also to its creditors, and that continuing to trade after the point where they know, or ought to have concluded, that the company could not reasonably avoid liquidation could result in personal liability for them.

To discuss any of the legal issues arising from financing, other business transaction or insolvency concerns, then please speak to your Geldards contact who will be able to assist.

RELATED:   CORONAVIRUS LEGAL UPDATES


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