CBILS Loans Update

03 Apr 2020

Our Corporate Finance Specialist Katy Booth understands that of 130,000 loan applications made so far only 1,000 have been approved to date.

See below her summary of the measures being introduced to try and speed up the process.

CBIL Loans update- as government amends policy to improve access to the scheme by the British Business Bank for struggling businesses.

1. Changes have been announced to take effect from Monday 6th April but need to be applied retrospectively to any offer made since 23rd March 2020

  • Most banks will now need to use their resources to amend previous offers and applications. 

2. For facilities under £250,000, use of personal guarantees not permitted under the scheme

  • This stricter requirement will mean that any second tier lender or fintech (Funding Circle for example) will now struggle to be part of the scheme, as the only security they could have taken would be a Personal Guarantee.

3. No requirement to look at other commercial loans first

  • The original process was to match finance options with businesses levels of risk, meaning reviewing the suitability of existing commercial products first, aimed at products that might have been cheaper.  Removing that option brings speed into the application process, banks issues remain over terms and rates.

4. Viability assessment unchanged but for small loans this determination could be based on the lenders’ internal credit models

  • This may mean detailed cash flows are no longer required, with banks operating their own assessment of the customer.

5. Insufficient collateral requirement removed, allowing those SMEs who are considered to have sufficient collateral to access CBILS facilities; but: Note 1 to the release says: “Please note that where there is sufficient security available, it is likely that the lender will take such security in support of a CBILS facility”.

  • The owners or directors will no longer have to give Personal Guarantees, as explained above,      but the business will still have to provide a charge over other security, most likely in the form of  a fixed and floating charge and debenture, if it is a limited company, or charges over specific assets for unincorporated businesses.

Finally, it has been seen that the maximum facility previously being offered by tier 1 lenders was a maximum of 25% of 2019 turnover or 2x annual wage bill, whichever is greater.  There is no mention in the latest release if this is still part of the guidance for lenders.  This can be restrictive for some of the smallest businesses when the minimum loan offered by some lenders, is £25,001.

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