As uncertainty and concern continues around COVID-19, the UK Government has announced a package of measures to support UK businesses which are affected by the virus. These included deferral of VAT payments, the Job Retention Scheme, rates relief and the Coronavirus Business Interruption Loan Scheme (CBILS).
The CBILS, initially announced by the Chancellor during the budget and extended last week, is a £330bn Scheme that can provide facilities of up to £5m for SME’s. The Scheme will be administered by the British Business Bank (BBB) with the funding provided directly by the BBB’s accredited Lenders which includes the major high street banks.
The Scheme will include term loans and overdrafts, as well as asset backed finance products such as Invoice Discounting facilities and asset finance. Whilst the borrower remains liable for 100% of the outstanding debt, the UK Government provides a guarantee to the Lender of up to 80% of the amount.
The key features of the Scheme are:
- Maximum facility of £5m
- Repayment terms of up to 6 years
- 80% guarantee provided by UK Government
- No upfront arrangement or guarantee fees payable to the Lender, these will be covered by the UK Government
- Interest free for the first 12 months, where again, this will be paid by the UK Government
- Security – At the discretion of the Lender, the Scheme may be used for unsecured lending for facilities of £250,000 and under. For facilities above £250,000, the Lender must establish a lack or absence of security prior to businesses using CBILS. If the Lender can offer finance on normal commercial terms without the need to make use of the Scheme, they will do so.
To be eligible for a facility under CBILS, an SME must:
- Be UK-based in its business activity, with annual turnover of no more than £45m
- Have a borrowing proposal which, were it not for the current pandemic, would be considered viable by the lender, and for which the lender believes the provision of finance will enable the business to trade out of any short-to-medium term difficulty.
Companies will need to carefully consider applications, but will need to provide a robust funding case to the Lender which will include a financial forecast setting out the funding requirement along with an overview document clearly setting out the key strengths of the business and its ability to repay any loan.
The Lexington team is ready to assist companies looking to access this Scheme from a menu of the following services:
- Preparing a robust set of financial projections for a period of up to 5 years that clearly sets out the current and forecast financial position of the business. These forecasts will need to incorporate the funding requirement and the proposed repayment terms;
- Sensitivity analysis to show how the financial performance of the business may be impacted by internal decisions a company may take to preserve cash along with a change in wider economic conditions. Companies will need to demonstrate to the Lender that they have considered a number of scenarios and contingency plans – Lexington believes this will be essential in ensuring applications are dealt with quickly.
- Either prepare or review an overview document for the business that clearly sets out its key strengths including its market position, management team, growth strategy and its ability to repay any facility.
- Liaise directly with the Lender on behalf of the Management team to ensure the latter’s key time is spent within the business during this period of uncertainty including negotiating covenants attached to the loan. Lexington has strong relationships with the majority of approved Lenders for CBILS and is already in discussions with them to gain a deeper understanding of how CBILS will be delivered.
Lexington can move quickly on behalf of any companies looking to access the Scheme and, whilst ensuring the applications are robust, we believe that submitting applications early will be advantageous given the expected demand.
Lexington would look to charge a relatively modest up-front fee to act for companies which reflects the choice made from the menu of support highlighted above with a success-based fee (linked to the size of the loan received) payable only upon successful drawdown of funds from the Lender.