CLBILS: the essential Q&A for businesses
On 17 April the government extended the concept of its Coronavirus Business Interruption Loan Scheme (CBILS) to larger businesses and the Coronavirus Large Business Interruption Loan Scheme (CLBILS) was born. Good news for medium to large businesses, but what are the facts?
What is it CLBILS?
The scheme (which is organised by the British Business Bank (BBB)) will run for 6 months from 20 April 2020, although it may be extended.
The government will back any facility under the scheme with an 80% guarantee. The lender has to be accredited to participate in the scheme. The borrower remains liable for the full debt (including fees which, unlike for CBILS, can be charged for the facility), the protection is for lenders to make them more willing to make funds available to businesses losing revenue and suffering cashflow problems in these uncertain times.
Who can borrow and how much can they borrow?
The business activity must be UK based with turnover in excess of £45m. However, the maximum amount that can be borrowed depends on the size of the business.
- businesses with a group turnover from £45 million up to £250 million can borrow up to £25 million;
- businesses with a group turnover of over £250 million can borrow up to up to £50 million.
This does not mean that lenders will necessarily offer the full amount.
There will need to be a clear borrowing proposal that would have been viable had it not been for the impact of the coronavirus. The proposal needs to show that the business will be able to trade out the short to medium term difficulty with the help of the finance. Lenders will have to be happy with the proposal and will also be carrying out their own usual credit checks.
If under normal circumstances you wouldn't have satisfied the credit check for the requested facilities then it is unlikely you will do so now, however each lender will have different credit criteria and this will also vary for different products they offer so there's no hard and fast rule.
In practice, the amount lenders will be willing to lend will likely also be impacted by their own internal policy.
What types of CLBILS loan are available?
As you would expect, there are term loans available; the scheme also covers revolving credit facilities (such as overdrafts) and invoice finance and asset finance facilities. However, there does, of course, need to be accredited lenders for these different facility types. Not all lenders will offer all facility types. If a lender didn't offer the facility type as a product before the crisis then it is less likely it will be able to do so now as it won't have an existing credit process for it.
The loans can be for as short a period as three months or as long as three years. It seems likely that the majority will fall somewhere in between and will depend on a number of factors, including the type of facility, the business needs (how has its sector been affected and when is recovery likely) and the level of risk.
Which banks are 'accredited' CLBILS lenders?
The accreditation period started immediately on 17 April. The BBB website maintains a list of who is accredited and the list includes many of our high street banks. However, they are not all accredited for all types of loan. So far just a few are accredited for revolving credit (overdraft) facilities and, at the time of publication, none for invoice finance or asset finance.
You do not have to use your current lender but it is likely that if you do so matters can be progressed more quickly as they will already have a lot of information about you and your business from your existing relationship. They may also have existing security over the key assets of the business. It's worth looking around however as some may offer better terms for what you need and experience with CBILS shows that some of the accredited funders are able to respond to applications and make funds available to businesses quicker than others.
There's been a lot in the press about personal guarantees -will I need to give one?
Lenders may well request personal guarantees however there is some comfort for business owners and directors as they will be capped at 20% of losses and then only after all other recoveries have been applied.
What will the paperwork look like?
There is no standard set of documents from the BBB so, as for any type of loan, this will vary from lender to lender and likely be impacted by the size of the loan.
This is not a time at which lenders will want to or have capacity to produce brand new documentation. You can expect the CBILS documentation to be similar to forms they have used in the past adapted to meet the requirements of the scheme.
For most lenders, this will mean using their own template forms but for loans at the higher end it may be that Loan Market Association (LMA) forms of documentation will be simplified and adapted for use by some lenders.
You can expect to see representations about the information in the viability proposal along with fairly stringent ongoing information requirements and restrictions on taking cash out of the business as lenders keep a close eye on the financial position of the business going forward as the lockdown situation develops.
Although the documentation may be familiar from previous facilities you've had with the lender, you need to review it with fresh eyes bearing in mind the current circumstances of the business.
In addition, there may be existing priority agreements in place that need to be amended to take into account the new facilities, or new priority agreements might be required (particularly if you are borrowing from a CLBILS lender that is not your current lender).
Aside perhaps from particularly large loans, lenders are unlikely to be willing to negotiate or amend their documents in any significant way so it is important to review and understand the terms and decide whether or not you can accept them.
What should be considered when applying for a CLBILS loan?
- Calculate your turnover to check you are accessing the correct scheme.
- Consider the type of finance most suited to help your business. Check on the BBB website to see which accredited lender provides that type of finance.
- Consider when you will need the finance. You will want to kick off the process but you don't want to be accruing interest before you need the funds.
- Compare terms on lender sites and consider who you want to approach first. Lenders are expected to offer a limited range of products and they may not all offer a product that is most appropriate for your business. You are most likely to have success with your current lender and with a facility type you've had before.
- Pull together a proposal and repayment plan with supporting evidence as to viability (including management accounts, cash flow forecasts, and a business plan for recovery). Check the guidance and ‘frequently asked questions’ on the BBB website as to what a lender will require, and ensure you are being realistic.
- Approach your preferred provider and find out what else they need from you in order to consider you for a loan and finalise your proposal accordingly.
- Have the documentation fully reviewed and explained so you understand the restrictions and requirements you need to comply with and can make an informed decision.
- If you're unsuccessful, you can try another lender, but consider why you were turned down and if you need to change your approach - for example, would a different type of finance or different term or amount of loan be more appropriate? Can you release funds in another way?
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