What is the Coronavirus Small Business Interruption Loan
Backed by the British Business Bank, the Coronavirus Small Business Interruption Loan scheme was announced in the March 2020 Budget and will be delivered through commercial lenders.
The Scheme provides businesses with a turnover of less than £45 million with secure access to bank loans, overdrafts, asset finance and invoice finance up to the value of £5 million, for up to six years. Larger businesses with a turnover of between £45 million and £500 million may access loans of up to £25 million under the Scheme.
The U.K. government will make a payment to cover any fees from lenders and the first 12 months of interest payments. This allows smaller businesses to avoid upfront costs and make lower initial repayments.Through the Coronavirus Business Interruption Loan Scheme, the U.K. government will provide a guarantee of 80% on each loan free of charge, subject to certain conditions and restrictions.
Under the Scheme, businesses should not be asked to provide a personal guarantee against the loan if they are borrowing less than £250,000.Forty accredited lenders can deliver the Coronavirus Business Interruption Loan Scheme, including all the major banks.
The Coronavirus Business Interruption Scheme will temporarily replace the Enterprise Finance Guarantee.A revamped loan fund for ailing firms hit by the coronavirus lockdown will have an immediate impact, RBS has said.RBS chairman Sir Howard Davies admitted there had been problems but expects to see a "sharp increase" in lending to small firms in the next few days.On Thursday, Chancellor Rishi Sunak overhauled the Scheme amid claims banks were taking advantage of the crisis.
The Government has pledged to guarantee £330bn of loans, but only £145m has been lent so far.
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Small firms say they have struggled with rigorous eligibility criteria for the government-backed loans, which are being issued by High Street banks and other lenders.
They have also complained of facing interest rates of up to 30% and being asked to make unreasonable personal guarantees.
It comes as the U.K. is facing recession as large parts of the economy are shut down.
On Friday, the influential Purchasing Managers' Index (PMI) survey showed Britain's dominant services industry suffered its biggest slump in March since 1996, sinking from a reading of 53.2 to 34.5.
Banks will no longer be able to push small businesses toward standard business loans ahead of Coronavirus Business Loan Interruption Scheme.
The Government has scrapped the requirement for small businesses to show that they have no other means of funding before accessing the Coronavirus Business Interruption Loan Scheme (CBILS).
Several banks had asked directors to put their homes or savings up as collateral and charge interest rates of up to 30 per cent after the first interest-free 12 months.
On Friday, March 27, the Coronavirus Aid, Relief, and Economic Security, or CARES, Act was signed into law to help support businesses and families through the on-going novel coronavirus (COVID-19) pandemic. This is an estimated $2 trillion package, which allows explicitly $10 Billion for Economic Injury Disaster Loans (EIDLs) and $350 billion for Paycheck Protection Loans (PPP) to help small businesses. And while it sounds like an exorbitant amount of money, this funding will be in high demand across the country, and will likely be distributed quickly.
There are several programs available and depending on your needs, and one may be right for you. Prospective applicants are encouraged to contact an SBA lender like Fidelity Bank, to begin the process right away.
On March 20, 2020, the Chancellor of the Exchequer, Rishi Sunak, unveiled the U.K. government's further £350bn package of fiscal measures to mitigate the severe economic downturn caused by the COVID-19 outbreak. One of the most significant steps is the launch of the Coronavirus Business Interruption Loan Scheme (the Scheme) which went live on March 23.
What is the Scheme?
The Scheme enables businesses to access facilities of up to £5,000,000, backed by an 80% government guarantee and is intended to assist U.K. smaller businesses which are experiencing an interruption in cash flow/revenues as a result of the COVID-19 outbreak.
The Scheme is managed by the British Business Bank on behalf of and with the financial backing of the U.K. Secretary of State for Business, Energy and Industrial Strategy.
The Scheme will run for an initial period of six months. Businesses which take advantage of it remain liable, notwithstanding the government guarantee, to repay 100% of the amount borrowed in full over the applicable periods stated in the Scheme. However, the Government will make a business interruption payment to cover the first 12 months of interest payments and any lender-levied fees.
A variety of products are available under the Scheme, including term loans, invoice finance, asset finance and overdrafts. Each product is supported by an 80% government guarantee, which is intended to facilitate credit approval within financial institutions, which might not otherwise have been forthcoming due to the lack of security (see further details below). However, if the lender can offer finance on standard commercial terms without the need to avail of the Scheme, the lender should do so.
The Coronavirus Business Interruption Loan Scheme (CBILS) provides financial support to smaller businesses (SMEs) across the U.K. that are losing revenue, and seeing their cash flow disrupted, as a result of the COVID-19 outbreak.
The Scheme is a part of a more comprehensive package of government support for U.K. businesses and employees. Read more at the Government's Business Support website.
CBILS has been significantly expanded along with changes to the Scheme's features and eligibility criteria. The changes mean even smaller businesses across the U.K. impacted by the coronavirus crisis can access the funding they need.
Importantly, access to the Scheme has been opened up to those smaller businesses who would have previously met the requirements for a commercial facility but would not have been eligible for CBILS. Insufficient security is no longer a condition to access the Scheme.
The maximum value of a facility provided under the Scheme is £5 million, available on repayment terms of up to six years. The Scheme provides the lender with a government-backed, partial guarantee against the outstanding balance of the finance.
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The borrower remains 100% liable for the debt. The Government will make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied charges.
Key Features of the Scheme
- Facility amounts of up to £5,000,000 per business
- Repayment terms are up to six years for term loans/asset finance facilities or up to three years for invoice finance facilities/overdrafts
- Facilities are government-backed by a partial guarantee of 80%
- Zero guarantee fees for SMEs to access the Scheme
- Lenders pay a fee to access the Scheme
The U.K. Government will pay a Business Interruption Payment to cover the first 12 months of interest and lender fees, thus reducing the immediate amounts payable by a business.
At the lender's discretion, loans of up to £250,000 may be made on an unsecured basis; loans above £250,000 require the lender to verify the lack of security from the borrower before accessing the Scheme.
The borrower remains 100% liable for the debt notwithstanding the 80% government guarantee
To qualify for the Scheme, the business must be based in the United Kingdom with an annual turnover of less than £45,000,000. Companies are also required to have a business proposal which, if it were not for the COVID-19 outbreak, would be considered by the lender as a viable proposal for the business to obtain funding to trade in the short-to-medium term.
Self-employed individuals (including sole traders, freelancers and limited partnerships) are also entitled to apply to the Scheme, provided they do not exceed the annual turnover threshold, operate through a business bank account and generate more than 50% of their turnover from trading activity.
However, banks, building societies, insurers and reinsurers, public sector primary and secondary schools, and employer, professional, religious or political membership organisations or trade unions are prohibited from accessing the Scheme.
To apply for a loan under the Scheme, a business should first contact its own provider through the lender's website (assuming the lender is participating in the Scheme); if not, the company can approach another participating lender. A list of the lenders participating can be found on the British Business Bank's website.
To participate, a lender must be accredited with the Scheme. There are currently 40+ lenders signed up to the Scheme. These lenders range from high-street banks to challenger banks, asset-based lenders and smaller specialist local lenders. Those lenders who wish to become accredited must submit an 'Expression of Interest' form to the British Business Bank via its Enterprise Finance Guarantee (EFG) programme. To be eligible, a lender must:
- Demonstrate a track record of secured term loans, overdrafts, asset finance or invoice finance to SMEs or demonstrate a clear intention and strategy to lend to SMEs
- Lend on a secured basis
- Look to provide a minimum of £500,000 of new lending in each of the three years following accreditation (with the option for this amount to be lower for lenders new to the market)
- Demonstrate readily available capital to meet lending forecasts or show evidence that money will be available for the three years following accreditation
- Have a viable business model with satisfactory operations and systems in place
- Be appropriately regulated and licensed and have all required permits and authorisations
- Enter into a legal agreement with the EFG which will include key terms, such as the guarantee to be provided; administration and policies to be put in place by the lender; and data and record management
Economic Injury Disaster Loans and Loan Advance
Small business owners in all U.S. states, Washington D.C., and territories are eligible to apply for an Economic Injury Disaster Loan advance of up to $10,000.
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The SBA's Economic Injury Disaster Loan program provides small businesses with working capital loans that can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing. The loan advance will provide financial relief for companies that are currently experiencing a temporary loss of income. Funds will be made available within three days of a successful application, and this loan advance will not have to be repaid.