How do I apply for the UK Govt Coronavirus Business Interruption loan?

Last post: Mar 16, 2020

In this blog we give details of the UK Government's Coronavirus Business Interruption loan including how to apply, as they become available

On March 11th the Chancellor, Rishi Sunak, announced in his budget that the government would be supporting businesses via the Coronavirus Business Interruption Loan (CBIL) scheme. We've created this blog to update on this scheme as it develops and more information comes to light including who is eligible and how to apply. We will also note the time of the latest update which currently is April 7th at 4:00pm. We don't have all the details yet but as we do we will update this blog.


Who is offering the Coronavirus Business Interruption loans?

The loans are being offered by the partners of the British Business Bank. Traditionally these have been a mix of High Street banks, specialist lenders (i.e. the only do asset finance or only do invoice finance) and small regional development funds. See here for a full list https://www.british-business-bank.co.uk/ourpartners/supporting-business-loans-enterprise-finance-guarantee/efg-accredited-lenders/


How does the scheme work?

The lenders are lending their own money - not government money - but their loans will benefit from a guarantee from the government of up to 80% per loan as long as total losses for the lender don't exceed 60% across the portfolio of loans made. The government will cover interest payments (not capital though) for the first 12 months. We are aware that some banks (e.g. Lloyds) are also offering a 6 month payment holiday from the start.


How do I qualify for a Coronavirus Business Interruption loan?

The key thing is you must be able to show that your business was able to afford the loan before the crisis. So, if you had a business that would not have been approved for a loan in January 2020, it is not likely to be approved now. On the other hand, if your trading activities have ceased because of the Coronavirus but you were profitable before this then our understanding is this is the kind of business the scheme is set up to support. On a technical note your business must be UK based, turnover less than £45m, you must generate at least 50% of your income from trading activities and the purpose of the loan is to support these activities. 


How much can I get?

The guidelines of the scheme stipulates loan amounts available should be "... a maximum of 25% of 2019 turnover or double the annual wage bill, whichever is greater". We've also heard one High Street bank say "no more than 1.5x to 2x last year's net profit). The maximum loan per business will be £5m and if a business has previously received a EFG loan or taken another form of "state aid" then the amount they are eligible for may be lower. 


What will it cost?

This will vary lender to lender. As this is modelled on (and now temporarily replaces) the Enterprise Finance Guarantee (EFG) scheme then we can say that this will likely be a market in two tiers. The top tier will be loans from the High Street banks which will have no arrangement fees and interest rates at a spread to Base rates depending on the sector (probably no more than 4-6%). However, historically, in our experience, appetite for this scheme among High Street banks has varied not just from lender to lender but branch to branch. Also, High Street banks were usually quite slow in processing EFG deals and this allowed a second tier of lenders to emerge. The second tier of EFG lenders are more Fintech based and can go from application to payout within a week. This speed comes at a price though and typically their loans have had an arrangement fee of 4-6% and interest rates of circa 17%. What we are seeing though is many borrowers opt for this option with a view to refinancing in a year's time when the interest payments begin but also when the market is hopefully operating more normally.


How quickly will the loans be processed?

We don't know for sure yet but I think we can safely say they will not be processed quickly. Using our experience of the EFG scheme, High Street banks take several weeks and Fintech lenders several days but we do expect that all lenders will be doing extended due diligence on applications at this parlous time in the economy so these times may lengthen for this reason.


Will there be a standardised approval process across all lenders?

No. As is the case with the EFG scheme, each lender applies their own criteria when assessing each loan application.


Will the business owner be liable for the loan?

Yes. As with the EFG scheme, the borrower remains 100% liable for the loan and the government's guarantee to the banks only kicks in if the borrower is no longer able to make repayments.


What should businesses do now?

We advocate three courses of action for now:

  1. Initially we would encourage you to talk to your bank. Individually, and separate to the Coronavirus Business Interruption loans, banks are preparing plans for fee-free overdrafts, loan payment holidays and term loans so it seems they are keen to help.
  2. Prepare a short narrative about your business and how the virus has impacted it. However this loan scheme works, we're pretty sure a synopsis like this will be required.
  3. Prepare a 12 month cash flow forecast based on a number of scenarios of when some sort of normality may return to your business. Again, not only is this likely to be something a lender will ask for but it may also help you get a handle on how the future for your business might look.


As further details become available we will update this blog. In the meantime if you have any queries or want to discuss your specific circumstances with us then please call and we will do our best to assist. For further information on government guidance for businesses, employers and employees please see https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses


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