CBILS: One week on

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A week after the launch of the CBILS, the practicalities remain fluid. Whilst eligibility criteria are set out extensively on the British Business Bank’s website and that of all the accredited lenders, there are still some key issues business owners are frequently asking for guidance on.

The below is based on the information we currently have to hand, however there have been suggestions in today’s media that the Chancellor is set to announce (potentially as early as Friday 3^rd April) that some features of the scheme will change, specifically in relation to the current prerequisite of eligibility for ‘ordinary’ lending.

Should I apply for a CBILS loan?

If your cash need is immediate then there are other steps you should take before thinking about a CBILS application i.e. speak to all of your existing finance providers and (if relevant) landlord about deferring existing commitments. Given the situation we are in, most are being pragmatic and trying to provide support where they can.

Bear in mind that CBILS loans are debt and need to be repaid. Notwithstanding the relaxation of some of the insolvency rules that have been announced, directors should always be mindful of all of their responsibilities before committing the business they run to additional debt.

What do I need to apply for a CBILS loan?

In most ways, applying for a CBILS loan is just like applying for any other loan.  The lender will look at the information your provide them (typically last three years’ accounts, current management accounts, impact of pandemic on business, actions taken by management and further actions available, and forecast trading). They will probably ask some questions or for some more information and then either lend the money or not. The better prepared and presented your application is, the better your chance of success.

As well as looking at your short term trading expectations, look at all the other government initiatives, establish if you can take advantage of them and then put together a short term cash flow for the next three months to establish what your business looks like.

Trying to work out what the medium term will look like for most businesses is guess work at the moment, but you should put together your best guess of what trading will look like for the next 12 months - and beyond - constructing a “best estimate” of the next 12 months and three years in a set of forecasts, including P&L, balance sheet and cash flow. You should also then consider some downside scenarios and the impact they would have on your forecasts.

Will my application be approved?

That depends on a range of factors - what trading was like before the pandemic, the actions you have taken to manage cash flow in your business already, further actions you could take, how you are expecting to be able to repay the loan and for some lenders whether you are an existing customer or not.

The lenders are all receiving huge volumes of enquiries so it may take some time for your application to be processed.  Your Relationship Manager or Director is probably dealing with a large number of applications from their customers but will do their best to keep you informed.

Will I have to give a Personal Guarantee?

It depends. For loans under £250,000 no PG (Personal Guarantee) is required from any of the major lenders.  For loans above £250,000 most lenders are saying that they will review the security requirements on a case by case basis but that they are required to take security where available, including PGs. Any PG taken will exclude the main residential dwelling of anyone being asked to give a guarantee.

NatWest have stated that they will not seek PGs on CBILS loans.

Is there a capital repayment holiday?

Again there are no hard and fast answers here, lenders will be looking at this on a case by case basis. It is worth noting that whilst a capital holiday will provide a short term boost to cash flow, you are essentially committing to then repaying the loan over a shorter period and that should be factored into your planning.

What happens if I am declined?

In most cases the first approach will be to your existing bank. They may decline your application but that doesn’t mean another lender won’t approve it. There are over 40 approved lenders on the CBILS scheme, though some are concentrating on providing facilities to existing customers only. Speak to your adviser who can help you decide which of the other approved lenders you should contact.