The scheme announced by the Chancellor last Wednesday has now gone live, and there are more than 40 accredited lenders – including all the main high street banks – who offer CBILS.
It is strongly recommended that you initially approach your existing bank(s). Given the demand for this product, in this unprecedented time, I suggest that you don’t shop around for the best deal. It could take you ages to find and could result in delays if you try to get a loan from a bank that doesn’t know you. Some bank websites show being a current customer as one of the criteria to get to the application. It’s not normally the best financial advice, but we are not in a normal situation. Stick with your existing bank and take the cash you can get, when you can get it.
In order to qualify for CIBLS:
- The application must be for business purposes, not personal.
- You must be a UK based business with less than £45 million in turnover, and this applies to limited companies, unincorporated businesses, partnerships and sole traders.
- The facility must be utilised primarily for trade within the UK.
- You must have a sound proposal and business plan but have inadequate security to meet the bank’s normal lending criteria. This is the crux of the scheme. By having the government guarantee in place, businesses that would otherwise not qualify for a loan can get access.
What facilities are available
It looks like CBILS applies to overdrafts, term loans and asset finance, and the banks are offering a minimum of between £10,000-25,000 up to a maximum of £5 million. Loans can be for a period of 3 months to 6 years.
No interest is charged on the loan for the first 12 months, and it looks like there are no arrangement fees or early repayment fees. For loans outstanding beyond 12 months, interest will be charged and some fees may apply too. Based on a quick review of the main high street banks’ sites, interest rates appear to be attractive.
Security and guarantees
In terms of the security you provide and the government guarantee, it is critical that you understand that as the borrower, your business remains liable for 100% of the loan. If things go wrong the bank will take action to recover 100% of the outstanding debt from you, the borrower. Not just the 20%. You need to be crystal clear about this.
Many people have been asking about the kind of security they can offer and whether the bank will seek a personal guarantee (PG). Based on preliminary reviews of the CBILS offers from the main high street banks, it would appear that PGs will be required on facilities above £100,000. For many SMEs £100,000 could be enough to get through this storm. I always advise entrepreneurs to avoid a PG if at all possible, and this could be a good reason to keep your needs below that threshold.
Under the terms of the scheme, the banks are not allowed to place a charge on your personal private residence, which is the banking term for your main home.
Be sensible with the amount that you borrow. Remember, your business is on the hook to repay all of the money, not just the 20% that the government has not guaranteed. If you’ve given a PG they will come after your personal assets (but they cannot place a charge on your home). I’ve seen guidance from some banks suggesting that the amount you borrow should not be more than 2x your annual wages and salary costs from 2019, nor more than 25% of turnover.
What information are the banks looking for?
You’ll need to provide:
- The last 2 years of full accounts (not the abbreviated ones filed at Companies House)
- Your latest management accounts – P&L and balance sheet
- A business plan showing that, in normal circumstances your business was viable – i.e. it would have been able to trade without needing access to funds
- A conservative forecast for the business over the next 12-18 months. Don’t be afraid to show the impact of a reduction in sales by 50%, 75% or even 100% because of the Coronavirus. This forecast needs to justify the amount you are seeking to borrow, and to be clear about what costs you need to cover.
- For loans that require a personal guarantee (typically only above £100,000) you’ll need to include a statement of your personal assets and liabilities. Remember, they cannot place a charge on your home.
Depending on which bank you go with there may be additional requirements, but as a minimum you will need to provide the above.
Log on to your bank’s website and get all the information they are asking for. You may need some help if this is all new to you. You can talk to your accountant or other business advisor.
Or you can talk to me. During my career, as a Chief Financial Officer of businesses large and small, I have raised tens of millions of pounds in debt funding. I understand exactly what the banks are looking for and I speak their language. I also speak your language as an entrepreneur. If you’d like my help, please send an email to firstname.lastname@example.org and use the subject “CBILS help please”.
Stay safe and stay healthy