Understanding the Coronavirus Business Interruption Loan Scheme
Despite its launch yesterday there seems to be a lot of confusion around the Coronavirus Business Interruption Loan Scheme (CBILS).
Firstly, not all of the 40 accredited lenders can provide every type of facility. The list of lenders is a mixture of high street banks and smaller private lenders and the capacity of these smaller lenders is a concern. How much business are they able to write? Despite the government backing 80% of the risk, they still need liquidity to lend. No doubt the first option for most SMEs will be the high street banks, however it has already been reported that they are facing a tidal wave of enquiries, which is difficult for any business to cope with. They are also vague on the underwriting criteria, and the timeframe from application to facilities being sanctioned is also a major concern.
Furthermore, there is plenty of ambiguity around some of the features and eligibility criteria. There is a misconception that it is a rescue package from the government yet there is a warning on the British Business Bank’s website that states in bold ‘The borrower always remains 100% liable for the debt’.
The advantage for SME businesses is that the government will cover 80% of the lender’s debt, which should result in more funding being available and on more flexible terms. However, SMEs may still be asked for director’s guarantees and face the prospect of these being enforced by the lender should their business fail. In effect, the government is only backing the lender should they be unable to recover monies outstanding from the borrower.
Apart from more availability of business funding, the upside for businesses is that the government has agreed to cover the first 12 months’ interest and any other up-front fees. Again, there is still cause for concern here as the interest will need paying first and then refunding – but more clarity on this should be available soon. Whilst it is a measure that takes some pressure off, it is only the interest element that is being discounted. The capital repayments still need to be paid and normally these will be paid monthly. Starting to repay immediately will reduce the availability of funds for the business.
Maybe the government will have to revisit this with the British Business Bank.
Contact one of our experts today for more advice on 0161 633 2548 or contact Tom Brown, Director, via email on email@example.com with your query and he will get back to you.