A closer look at the Coronavirus Interruption Loan

Is the Coronavirus Business Interruption Loan Scheme (CBILS) right for your business? Business Control’s Richard Starkey provides some points to consider.

CBILS has really grabbed the attention of business owners over the past few days. We’ve had scores of requests for information about the scheme and that’s entirely understandable – it’s a very attractive offer.

The new scheme can provide facilities of up to £5m for smaller businesses that are experiencing lost or deferred revenues, leading to disruptions to their cashflow. And the government is effectively underwriting these loans and enabling lenders to hand over the funding to companies in crisis. Plus, there’s no cap on the total amount of money available, if you’re eligible you’ll get the funding you need. So far so good.

The key features are also good:

The maximum value of a facility provided under the scheme will be £5m, available on repayment terms of up to six years
The government will pay the interest and any fees for the first 12 months, which means lower initial repayments
There’s no guarantee fee for SMEs to access the scheme
Finance terms are up to six years for term loans and asset finance facilities. For overdrafts and invoice finance facilities, terms will be up to three years.

Considerations

Firstly – and crucially – any money you receive will be a loan. You will be 100% liable for the debt. This loan has been created for going concerns, and in fact, you must demonstrate that yours is a viable business to qualify. This means that, among other factors, the company must have been trading profitably and had cashflow before the crisis.

Or to put it another way: it’s not an opportunity to breathe new life into an already failing business.

Another aspect to think about is that you’ll need to provide the lender with a borrowing proposal that will convince them that you’ll be able to trade out of any short-to-medium term difficulty. The loan can cover anything from an increased overdraft to invoice financing or a managed loan, but I don’t believe you’ll be able to change your business model radically. A coffee shop owner couldn’t declare that they’re going to transform the place into a garage, for example.

It’s not about diversification; it’s about the financial facilities you need to steer your business out of deep water. What steps are you trying to take to mitigate? And while you’ll need to show your workings, I’m fairly certain that the banks will ‘round off the corners’ on many applications. This will be an incredibly popular scheme and they will want to process as many as possible as quickly as possible.

Talking of banks, you can apply for the loan through pretty much every bank in the country (see here for details), but I wouldn’t expect a particularly swift response – one of our customers finally got through on the phone only to be told to expect a call back in three or four days.

Finally, as mentioned before, don’t forget that you’ll need to pay this money back. And while this isn’t a particularly positive note to sign-off with, you need to be sure that, if you get the loan and start building the business again, there’s still a market to sell your goods or services to. By all means apply for the finance, but give it the consideration it deserves.

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