For many business owners who’d already seen an immediate reduction or cessation of their trading, the announcement of the Coronavirus Business Interruption Loan Scheme (CBILS) was like a bright ray of sunshine on some very dark times. 

Many of you will then have rushed to call your business managers to get this in place to find that the bankers and government were not singing the same tune. Instead you were being told about other types of lending with personal guarantees. I’m sure many of you stepped away from that call thinking your mind that had been in overdrive for days was playing tricks on you. 

The banking world, who have always had a lot of pressure on them to be responsible lenders, had concerns over the lending announced by government and also had a lot of internal changes to make to be ready for lending thrust upon them with little notice. 

Months later the bankers have had plenty of time to catch up on what the government need in place and are now in a much better place to discuss lending and have relaxed the requirements needed slightly BUT you still need to have done your business homework. 

I’ve outlined below the criteria for these loans and all your finance options because taking finance is a big commitment in any circumstances. It needs to be well planned because it may affect your ability to borrow during the term of lending so its important you ask for the right amount even if knowing that in the current times is like chasing the end of a rainbow.

Eligibility 

The key issues that will help establish whether you are eligible are:

  • Have you been trading for more than 1 year?
  • Were you profitable (before the current crisis)?
    (only exception is first year loss but up to date management accounts show profit)
  • Over 50% of your turnover has to be from your main trade (investments will not be assessed)
  • Accounting records must be up to date with bank accounts reconciled to 31st March
  • Be able to demonstrate you have taken up all other possible reliefs? VAT deferrals, time to pay, job retention scheme etc.
  • Be able to demonstrate you have negotiated with suppliers, deferred rent and implemented other cost cutting measures?
  • Completed a comparison of pre and pot COVID 19 trading conditions
  • Your business has to have been ‘viable’ at December 19
  • Your business has been specifically affected by COVID 19

Loan types and rates

The aspects to any CBILs loan are:

  • Term loans and asset finance up to 10 years
  • Invoice finance and overdrafts up to 3 years
  • Capital repayment holidays of up to 12 months
  • First year’s interest and arrangement fees covered by the government
  • No charge for the 80% government guarantee
  • There are no personal guarantees for loans of less than £250k and if over this amount the personal guarantee is only for 20% of the loan

How much can your business borrow?

The maximum loan is 2 times the annual wage bill or 25% of turnover if the business has been open for 2 years or more. It is not clear whether it’s the higher or the lower of the two and this may be down to your bank’s discretion.

If your business has not been trading for two years, then the maximum amount is 1 times the annual wage bill.

What interest rate will you pay?

Typical rates will be between 3.5% to 5%

What information do you need to complete before you approach a lender?

  • Up to date annual accounts submitted to Companies House
  • Management Accounts up to 31st March 2020
  • 6, 9 and 12-month cashflow demonstrating repaying delayed VAT, PAYE etc

You have until 31 March 2021 to to get your application in.

When considering finance options it is important to ensure you are getting good professional advice and an objective analysis of your application before submission. The high number of applications being received means that you may only get one chance to get this right.

Contact me today!

Emma White

FCA

Partner

01474 853856

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