Viewpoint: CBIL - offering a helping hand

Even with the CBIL scheme, good financials are still paramount.

The UK government has launched the Coronavirus Business Interruption Loan (CBIL) scheme to provide liquidity to small and medium sized UK companies during the Covid-19 pandemic.  

The CBIL scheme is available for SMEs in two tranches:

  • businesses SMEs with revenue of less than £45m can apply for loans of between £10k and £5m.
  • businesses with revenue between £45m and £500m can apply for loans of up £25m. This tranche of the scheme is in the initial stages of roll-out and details are still emerging on the expected terms that will be offered to borrowers.

With the hiring market ever-more impeded in recent weeks, we know that recruitment firms may be facing immediate working capital shortfalls and may benefit from the much-needed, additional liquidity offered by the CBIL scheme.

Currently, the scheme is accessed directly through 40+ accredited banks and alternative finance lenders, either by phone or through their websites and loan applications should be submitted directly. Funders will determine CBIL scheme eligibility; requests don’t need to apply for the scheme specifically. Other lenders including challenger banks have also applied to become accredited lenders but to date have not been approved. In the latest iteration announced by the chancellor, viable SMEs who have been impacted by Covid-19 will be eligible for CBILs, regardless of whether they were able to secure regular commercial finance or not. This is a major change from the initial scheme criteria and in our view has made it easier to access for a lot of businesses. If a CBIL scheme application has been rejected already it may be worth revisiting this with your lender.

Currently, banks are still implementing new processes for the CBIL scheme and the success of the scheme will be reliant upon the banks having the resource to handle the deluge of applications that are being tabled. Whilst the government will underwrite 80% of loan value, the banks will still carry 20% of the risk. This will require a full credit analysis, so clarity of applications and high-quality presentation of financials will be paramount.

For all loans below £250k, the banks have agreed not to ask for personal guarantees from directors, but for loans above £250k, personal guarantees are being considered on a bank by bank basis and are at the discretion of lenders. Personal guarantees are limited to 20% of any CBIL loan amount outstanding and principal private residences cannot be accepted.

Banks will be looking for sensible financial projections and a sound proposal for returning to full-strength, post-Covid, in order to make it through credit committees. While coronavirus is a major consideration, banks have been clear that they do not intend to lend to businesses that were not financially viable before the pandemic. Current applications should purely constitute requests for additional working capital, designed to support companies with short-term liquidity needs and ‘in case of need’ facilities.

Having discussed with banks in the market, we know that priority assistance will likely be given to customers where banks have pre-existing credit exposure, however new applications are being accepted. In the corporates market, payment holidays and covenant waivers are also being considered more widely to assist existing customers to manage their outstanding obligations in the face of reduced cashflow.

Clearwater International is able to provide support with any complex financing arrangements, whether through standard debt channels or through the CBIL scheme. We can help to navigate the complexities of the application and negotiation process to ensure the best possible access to financing in the current market. 

Chris Smith is a chartered banker and partner at global corporate finance house Clearwater International

Image credit | iStock

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