By now most businesses are familiar with the government’s Coronavirus Business Interruption Loan Scheme (CBILS). If you’re still a bit unsure, you can read all about it here. Before you head off this page however, take note that Chancellor Rishi Sunak announced a few changes to the CBILS on Thursday 3 April. We’ll cover these below.
WHY UPDATE THE CBILS?
As quick as Sunak was to announce financial support measures for SMEs – and to enhance these measures a week later – the CBILS has come under fire for delivering far too slowly.
The British Business Bank’s accredited lenders have felt the pressure of more applications than they can realistically handle, causing some to temporarily pull out of the CBILS while they try to catch up. Of the 130,000 enquiries that have been made by businesses to date, HM Treasury confirmed last week that just 983 businesses had been approved for funding through the CBILS, totalling £90 million.
The traditional lenders on The British Business Bank’s accredited list are inherently slow-moving, used to strict rules and regulations that dictate extremely long lead times for any significant changes to processes. While they have certainly moved much faster to get set up for the CBILS than they would’ve done in normal circumstances, many SMEs feel that it’s just not fast enough.
Fintechs, challenger banks and alternative lenders across the country have been canvassing the British Business Bank, eager to become accredited lenders so they can get much needed funds out the door and into the hands of businesses. These lenders are agile, fast-moving by their very nature and confident that they can get the job done at pace.
Speed aside, the issue of security has come up time and time again as SMEs have either been turned down for a CBILS loan or blind-sided by confusing criteria. To be clear, the CBILS is a necessary and highly beneficial measure that will deliver essential financial support to UK businesses – provided they’re actually approved for the funding, and fast.
Let’s take a closer look at some of the key updates that Sunak has made to the CBILS as a way of addressing these concerns.
WHAT UPDATES WERE MADE TO THE CBILS?
Access to other finance Before 3 April, if lenders could offer an SME finance on normal terms without using the CBILS, then that business wasn’t eligible for CBILS funding. Following the updates, the government’s website states that:
“all viable small businesses affected by COVID-19, and not just those unable to secure regular commercial financing, will now be eligible should they need finance to keep operating during this difficult time.”
This is a key point to keep in mind: the CBILS eligibility criteria still specifies that a business must self-certify that they’ve been adversely affected by the coronavirus pandemic.
Sufficient security Prior to the updates, lenders could only use the CBILS for finance facilities over £250k if they could prove to the British Business Bank that the SME wasn’t able to provide security. But insufficient security is no longer part of the CBILS eligibility criteria for facilities both under and over £250k.
One very important change to be aware of is that lenders are no longer permitted to request a personal guarantee from SMEs for facilities less than £250k. Before we dive too much further into this point however, it’s worth explaining what exactly a personal guarantee is.
A personal guarantee is essentially a legal promise that the owner of a business makes to repay the debt to a lender. So, if the business itself isn’t able to meet its obligations and liabilities, then the owner agrees to to do so personally.
The updated security terms on The British Business Bank’s website state that lenders may still (at their own discretion) request personal guarantees for facilities over £250k. However, this specifically excludes Principal Private Residence (i.e. the business owner’s home). The terms also include a cap on recoveries of just 20% of the CBILS facility after the proceeds of business assets have been applied.
A BIG STEP FORWARD FOR THE CBILS?
HM Treasury’s statement regarding the updates also mentions “operational changes to speed up lending approval” but doesn’t provide any additional detail as to what these changes are. It is nonetheless promising that the government has recognised a need for action to ensure faster delivery of funding.
The introduction of a Coronavirus Large Business Interruption Loan Scheme (CBLILS) will also provide financial support to bigger businesses turning over £45 million to £500 million with government-backed loans up to £25 million.
Dame Carolyn Fairbairn, Director-General of the Confederation of British Industry (CBI), has called the latest round of updates to the CBILS “a big step forward that will help deliver cash faster to firms battling for survival in the headwinds of the pandemic.”
Similarly, Mike Cherry (National Chair of the Federation of Small Businesses) has said that the FSB welcomes these changes that give more businesses direct access to CBILS funding and with less daunting security requirements.
As the economic climate continues to change and businesses continue to grapple with new and unpredictable challenges, there could be yet more CBILS updates to come. The hope is that these updates will include the accreditation of more lenders and the return of those who have had to put their involvement on hold.
What’s important is that the government, traditional lenders, Fintechs, challenger banks and other alternative providers continue to work together. Now’s the time for us all to rise up and do everything in our power to see the UK’s small and medium businesses emerge from this crisis, not only able to recover, but to thrive.