03 April 2020

Coronavirus Business Interruption Loan Scheme Summary – A summary of the support scheme for UK SMEs

The Coronavirus Business Interruption Loan Scheme (CBILS) forms one part of the UK government’s financial support being extended to UK businesses.  The CBILS scheme is primarily geared towards small and medium sized businesses (SMEs), as CBILS eligibility is limited to businesses with an annual turnover not more than £45 million.  CBILS is being offered alongside the UK government’s Coronavirus Large Business Interruption Loan Scheme (CLBILS) which is intended to assist large UK businesses, and the Covid Corporate Financing Facility (CCFF).  King & Wood Mallesons’ summary on CLBLIS can be found here and its summary on CCFF can be found here.  

CBILS is being administered by the British Business Bank, but all applications will need to be channelled via lenders participating in CBILS and accredited by the British Business Bank.  CBILS commenced on 23 March 2020 and will initially run for six months, with an expansion to CBILS becoming operational from 6 April 2020. 

What is CBILS?

CMILS is a scheme which assists eligible UK businesses with obtaining access to lending in circumstances where, but for the disruption caused by the COVID-19 virus pandemic, the business would have been able to attain such borrowings without the assistance of CBILS and will enable the business to trade out of any short-to-medium term financial difficulty caused by the COVID-19 pandemic.  A CBILS facility will be partially guaranteed by the UK government and will have the first 12 months of interest and fees paid by the government, with businesses obtaining the benefit of a CBILS facility remaining fully liable for repayment of a CBILS facility.

What does CBILS cover?

CBILS can be used to assist businesses with obtaining the following types of lending:

  • term loans with a principal value of £5 million or less and a repayment term of six years or less;

  • asset finance facilities with a principal value of £5 million or less and a repayment term of six years or less;

  • overdraft facilities with a principal value of £5 million or less and a repayment term of three years or less; and

  • invoice financing facilities with a principal value of £5 million or less and a repayment term of three years or less.

Who is eligible for CBILS assistance?

The baseline eligibility criteria for access to CBILS is as follows:

  • an eligible business (see explanation below);

  • annual turnover not more than £45 million (on a consolidated basis in the 12 months prior to application if the business is part of a group), with more than 50% of its turnover generated from trading activity;

  • the lending proposal is for business purposes and will be used primarily to support trading in the UK;

  • the lending proposal would have been considered viable by the lender if the business was not disrupted by the COVID-19 pandemic;

  • the lender considers that the business would be viable but for the COVID-19 pandemic;

  • the applicant certifies that it has been adversely impacted by the COVID-19 pandemic;

  • the applicant establishes to the lender’s satisfaction that it will be able to afford to repay the CBILS facility;

  • the lending proposal meets the guidelines for CBILS (as noted above); and

  • the lending proposal is offered by a lender that has been accredited by the British Business Bank as being eligible to participate in CBILS.

What businesses are eligible for a CBILS facility?

Businesses that meet the following criteria are eligible to obtain a CBILS facility:

  • business activity is operated through a business account;

  • the business generates more than 50% of its turnover from trading activities;

  • the business is one of the following:

  1. sole trader;

  2. an individual partner of a general partnership acting in a business capacity;

  3. freelancer;

  4. body corporate;

  5. limited partnerships;

  6. limited liability partnerships; or

  7. any other legal entity carrying out business activity in the UK through a business account in any sector with an annual turnover up to £45 million; and

  • the business is not one of the following:

  1. a bank, insurer or reinsurer (insurance brokers are not part of this exclusion);

  2. public sector bodies;

  3. further-education establishments if they are grant-funded; or

  4. state-funded primary and secondary schools.

What security may need to be provided to support a CBILS facility?

CBILS facilities with a facility limit below £250,000 will not be required to be supported by any personal guarantees.  

For CBILS facilities with a facility limit above £250,000, lenders will have the discretion to request personal guarantees to be provided to support the facility, but any such personal guarantees will be limited to exclude any recovery (i) against the guarantor’s principal private residence (PPR) and (ii) in excess of 20% of the outstanding balance of the CBILS facility after the proceeds of business assets have been applied.  

Previously, CBILS facilities were not available to businesses which had sufficient security to support a facility on normal commercial terms.  Changes to CBILS have now opened CBILS facilities to businesses even if they otherwise would meet a lender’s requirements for a facility on normal commercial terms.  The British Business Bank has left lenders with the discretion to continue to require security to be provided by businesses entering into a CBILS facility where such businesses have sufficient security available, but has clarified that a PPR cannot be used to secure a CBILS facility.

What benefits will CBILS provide to eligible businesses?

The main purpose of CBILS will be to facilitate short term liquidity to eligible businesses affected by the COVID-19 pandemic by making lending facilities available to such businesses that would not otherwise be available to them under normal commercial lending terms.  The government has clarified that CBILS will be available to smaller businesses experiencing cashflow difficulties even if they meet the requirements for standard commercial facilities.  CBILS will facilitate making facilities available to businesses by the UK government guaranteeing 80% of the facility balance of eligible facilities without any fee for such guarantee being imposed on the borrower.

Additionally, the government will pay for the first 12 months of interest payments and any lender-imposed fees on each CBILS facility, which should result in no upfront costs being incurred by a business entering into a CBILS facility.  The British Business Bank notes that fishery, aquaculture and agriculture businesses may not qualify for the full interest and fees payment under a CBILS facility.

How to apply for a CBILS facility?

Whilst the British Business Bank is administering CBILS, all CBILS facilities will be given by lenders participating in CBILS and accredited by the British Business Bank.  The British Business Bank is encouraging all lending enquiries and applications to be made via the websites of participating lenders in order to alleviate demands on telephone and branch staff of participating lenders.  

The British Business Bank has also encouraged businesses to consider when to make an application for a CBILS facility, as some businesses may have a greater urgency for funding than others who may be able to defer their funding needs in the immediate short term.

Currently, there are 52 accredited lenders for CBILS facilities, and the British Business Bank has indicated that the list of CBILS accredited lenders will be widening in the future as it accepts applications for new lenders to become accredited to provide facilities for CBILS.

King & Wood Mallesons’ Banking & Finance team are available to discuss your queries on all areas of finance and financial markets law, please contact Khai Nguyen or Vanessa Docherty in our London office.

[Article updated on 3 April 2020 with details of widened availability of CBILS]

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