The Government-backed SME funding train is finally rolling into town…
There are currently three government-backed funding schemes available to businesses:
- the Coronavirus Business Interruption Loan Scheme ('CBILS'), which allows a maximum loan amount of £5 million for businesses with turnovers of up to £45 million;
- the Coronavirus Large Business Interruption Loan Scheme, which allows a maximum loan amount of £25 million for businesses with turnovers of between £45 million and £250 million; and
- the Covid Corporate Financing Facility, which provides funding to businesses by purchasing commercial paper of up to 12 months’ maturity and is only open to those with certain credit ratings.
Here, we deal only with the CBILS.
The Government has launched CBILS to supports SMEs and there are over 40 accredited lenders associated with the scheme.
Main CBILS terms
In short, the CBILS terms are as follows:
- A CBILS facility may be up to £5 million and can take the form of term loans, overdrafts, invoice financing or asset financing.
- It must be used for a business purpose and the business must have been adversely impacted by COVID-19 (for example, a significant reduction in cashflow as a result of the virus).
- The CBILS facility is primarily to support trading in the UK and so the SME’s business must generate more than 50% of turnover from trading.
- The SME must be UK-based and have an annual turnover of no more than £45 million.
- The CBILS facility will be up to six years for term facilities and up to three years for other forms of facilities.
How does it work?
- The CBILS lender provides the funds to the SME under a new facility agreement (please note new security may also be required).
- The lender receives a government-backed guarantee for the new CBILS facility, although the SME remains the primary debtor.
- The government covers the first 12 months of interest payments and lender charges.
Who are the accredited lenders?
A list of the accredited CBILS lenders can be found here.
Are personal guarantees required?
For facilities below £250,000, no personal guarantees are required, but above this threshold it is at the lender’s discretion. However, the guarantee would be limited to 20% of the new facility following enforcement by the CBILS lender. It is worth noting that the guarantor’s primary place of residence cannot be used as collateral for the guarantee or indeed for any CBILS security.
If the SME borrower already borrows with one of the accredited lenders, then the process should be fairly smooth. However, if the SME borrower needs to obtain finance from an accredited lender that is not their primary lender, then matters get trickier. First, consent for the CBILS facility is likely to be required from the primary lender - there will normally be a restriction in the primary facility documents on the SME borrower incurring further debt and granting other security. Second, issues of priority of security may arise. The CBILS facility would rank second to the primary lender and a deed of priority would be required to be entered into by both lenders. These factors may cause unnecessary delay in obtaining funds under the CBILS.
The current global crisis is evolving rapidly, and the rules and guidance for individuals, companies and other entities to manage its implications are similarly fast moving. Notes such as this may be out of date almost as soon as they are published. If you have any questions prompted by this article or on any other matter relevant to you, please get in touch with your usual contact at Forsters.