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Coronavirus Business Interruption Loan Scheme

The top ten frequently asked questions about the Business Interruption Loan Scheme

1. Is a UK subsidiary of an overseas business eligible to apply?

The most important consideration for Coronavirus Business Interruption Loan Scheme (CBILS) eligibility is where the company is trading not where it is owned. A UK-registered subsidiary of an overseas business, or even a UK business which is actually registered overseas, will be eligible providing that the core of its trading operations are in the UK.

When the application is made by a group member then the group turnover, including any overseas parent group, will be aggregated when considering the size of the loan available i.e. whether the business qualifies for the small CBILS scheme or large Coronavirus Large Business Interruption Loan Scheme (CLBILS) scheme would be suitable

In addition, as part of the application process, the lender would also consider the level of existing financing facilities the business has access to, and that would include finance which is already available across the group.

2. Can you apply even if your business is not profitable?

The lender will be looking for viable businesses which need support due to the impact of the Coronavirus. If the business is not a ‘business in difficulty’ at the application date then you may be eligible despite not being profitable.

A ‘business in difficulty’ is one that has:

  • accumulated losses of more than half of its subscribed share capital for limited companies, or for unlimited liability companies its capital. This does not apply to businesses which are less than three years old; or
  • started, or had fulfilled the criteria to be put into, collective insolvency proceedings; or
  • previously received rescue aid that was yet to be reimbursed (or, in the case of a guarantee, terminated); or
  • received restructuring aid, and was still under a restructuring plan; or
  • (where it does not meet the SME criteria) has fallen below solvency ratios for the previous two years.

The lenders are looking for longer-term viability, including the ability to service and repay any new debt.

If your business plan shows income or profits in the future, as well as the ability to service new debt, then your application could be considered.

You may also wish to consider applying for the new Bounce Back Loan Scheme which offers businesses the chance to borrow between £2,000 and £50,000 and access the cash within a few days. Importantly for loss-making businesses, under the new Bounce Back Loans Scheme lenders will not need to apply traditional business viability tests to applications. See our separate article for the Bounce Back Loans Scheme here.

3. Can I apply for a CBILS loan if I have raised funds under the Seed Enterprise Investment Scheme (SEIS) or Enterprise Investment Scheme (EIS)?

The latest guidance from the British business Bank confirms that companies which have received investment under the SEIS or EIS schemes will be eligible for support using the CBILS scheme providing they satisfy the other eligibility criteria.

4. Can more than one company in a group apply for a facility using the CBILS scheme?

The lender will be looking at the individual company making the application, but as part of this they will be considering the group structure. The consolidated group turnover is considered when looking at whether the company may qualify for the small or large CBILS scheme i.e. whether the group turnover is below £45m per annum.

In addition, when considering an application for the individual company, the lender will be assessing that individual company’s viability and existing financing arrangements and whether it has existing access to funds from elsewhere in its group will be part of this. Any existing CBILS lending in another group company should therefore be disclosed when an application is made.

5. Can my business borrow funds under the CBILS scheme and also apply for a loan under the new Bounce Back Loan Scheme (BBLS)?

It is not possible to have a facility under both the CBILS and BBLS.

If you have an existing CBILS facility of up to £50,000 a new loan under the BBLS can be approved if it will be used to refinance the existing CBILS facility in full. All lenders who have approved CBILS loans so far will allow CBILS loans to be refinanced into a BBLS facility up until 30 November 2020.

See here for further details of the Bounce Back Loan Scheme

6. My company claims Research and Development Corporation Tax credits – does that affect whether we can apply for a CBILS facility?

The CBILS loans are made on a commercial basis. However, the Government guarantee to the lender is considered to be a form of State aid to the borrower.

The SME R&D tax credit scheme is also a notified State aid. Under the SME scheme you are not permitted to claim any other notified aids in relation to the same R&D project as this will cause a breach. Care must therefore be taken when applying for the CBILS as the intended purpose of the loan will impact the qualification of the R&D project for R&D Relief.

In summary, the funds from the CBILS facility should be used to support business activities other than those specific projects which qualify for the R&D tax credits, where possible.

7. My business manufactures products in the UK but sells exclusively overseas – can I apply for support using the CBILS scheme?

Yes. UK-based export businesses are eligible, even where their income comes wholly or mainly from overseas, providing that the core of the business activities are in the UK. Factors to consider would be where the employees are located and where the businesses’ operations are based. Providing these are in the UK then the business would be eligible

For loans under £30,000, the loan cannot be used for certain activities outside of the UK. In the event that an exporter wishes to borrow under £30,000 they may self-certify if the loan isn’t going to be used for these purposes.

8. How long does it take to get approved for a facility under the CBILS?

In our experience of the scheme to date we’ve found that around two-weeks (or 10 business days) is a typical time-frame from initial application to the business drawing down funds under a CBILS facility.

Where a company does not have a dedicated relationship manager at their bank there can be some delays. We would therefore encourage businesses to approach their relationship manager where possible to discuss making a CBILS application, rather than simply applying online, to ensure their application is handled in the most efficient manner.

9. Can I apply for CBILS with another lender if my current lender refuses?

Yes, you can. Each lender is responsible for their own decisions for which businesses they will support under the Scheme.

You may find that a different lender has a different risk profile and may accept your proposal where your current lender may not.

In addition, you may wish to consider whether a different lender will offer better pricing, terms or conditions to a loan, or if they can offer an alternative type of finance which better suits the needs of your business.

10. What information do I need in order to apply for a CBILS loan?

There is no standard list of what the lenders will ask for, but in our experience the information lenders requests tend to be both financial and narrative in nature.

Financial information requested includes the following:

  • Up to three years’ accounts
  • Management accounts for the trading period prior to COVID-19
  • Details of all existing finance in place, including undrawn facilities / headroom
  • Cashflow-forecast covering the period impacted by COVID-19 and also demonstrating planned recovery period
  • Cash flows demonstrating level of finance required and incorporating servicing of CBILS finance
  • Details of assets available for security

You will also need to provide a number of narrative details to accompany your application such as the following:

  • Summary of how COVID-19 has affected your business
  • Details of measures you have already taken to reduce financial impact of COVID-19 and any other Government support you have utilised
  • An explanation of the assumptions you have used in preparing your cash-flow forecast and whether you have carried out any sensitivity analysis

Would you like to know more?

If you would like to discuss any of the above guidance or have other queries about how you can make the right decisions for the future of your business and your income, please contact your usual Blick Rothenberg contact or one of the partners to the right.

You can also visit our Coronavirus – Practical Guidance for businesses today Hub for our latest insights and sign up here to receive important Practical Guidance updates delivered directly to your inbox.