Out with the old and in with the new: the future of CBILS
CBILS extended once again, to the end of March 2021, and a new government scheme to take its place on the horizon
by Rachel Adams and Natalie Francis - Banking and Finance
At the start of the coronavirus pandemic last year UK business ground to a halt, with most being unable to operate as usual as the UK went into its first lockdown. In an effort to prevent a flurry of insolvencies, the UK government introduced various financial support packages to businesses from the Coronavirus Job Retention Scheme to the Coronavirus Business Interruption Loan Scheme (CBILS), which launched in March 2020.
What are CBILS?
CBILS provides UK SME businesses, whose finances have been negatively affected by Covid-19, with the ability to access loans of up to £5m in finance. The finance is government backed, as the UK government guarantees to the lender the repayment of 80% of the finance and pays interest and any fees for the first 12 months. As with most financing arrangements, the borrower business remains 100% liable for repayment of the finance but in circumstances where the lender has exhausted all legal avenues of its own for repayment of the finance, the government guarantee can be used. The terms of these finance packages range from up to 6 years for loans and asset finance facilities and up to 3 years for overdrafts and invoice finance facilities. CBILS was originally due to come to an end on 30 November 2020, but was then extended to 31 January 2021 and then extended once again until 31 March 2021.
Pitfalls of CBILS
One of the downsides of CBILS is the standard ‘take it or leave it’ documentation, which leaves no room for negotiation or flexibility on financial covenants, with greater restrictions on dividends proving problematic. In addition, particularly in the early stages of the scheme some CBILS required personal guarantees which are unpopular with most business owners knowing that their personal wealth will be at risk.
New government scheme on the horizon
Earlier in December the government announced its plans to launch a new ‘permanent’ scheme which would take place at the end of CBILS. Plans for the new scheme were still being finalised, but since then the government has extended the deadline for applications under CBILS once again, to 31 March 2021. It is expected that the new scheme will be paused until the spring and come into effect in April 2021, once CBILS has come to an end. The new scheme is expected to offer government backed loans (up to 80% again) of up to £10m with a term of up to 6 years for ‘viable’ SME businesses unable to obtain normal finance. Similar to CBILS, borrowers can expect rigorous checks on creditworthiness and sometimes the requirement of personal guarantees, which may cover primary residences that were previously excluded under CBILS. As covid-19 cases rise and the announcement of the third national lockdown, it is hoped that CBILS and the ‘new’ scheme will help UK SME businesses stay afloat in 2021, particularly in the tough economic times that lay ahead.
