Coping with Covid 19 ~ Government Backed Business Loans

With an increasingly uncertain economic climate ahead, in this report, we take a look at the new measures aimed at supporting business borrowing.

Coronavirus Business Interruption Loan Scheme

The new Coronavirus Business Interruption Loan (CBIL) scheme has been launched.  It is modelled on, and for now replaces, the Enterprise Finance Guarantee (EFG) scheme.

Here is how it will work:

• the Government is not lending the money, rather they are offering guarantees to lenders who wish to lend money. The guarantee only covers 80% of the loan made up to a maximum of 20% of the total loans made by that lender. Above this 80% guarantee, the lender takes the full amount of any losses so lenders are still being thorough when examining applications

• the Government will, however, pay the interest on the loans for the first 12 months leaving SME borrowers only liable to making capital repayments during this time

• the only lenders who currently can lend under this scheme are those that were accredited to make EFG loans in the past. There are about 40 of these, mainly a mix of the High Street banks, specialist lenders (e.g. those that only do asset finance or only do invoice finance) and some small regional development lenders, although some have already withdrawn from the marketplace

• of the lenders that have announced details of their scheme so far, the guidance seems to be that they will look at applications for amounts of no more than 25% of turnover or twice last year’s wage bill (incl. NI), whichever is greater

• it is likely that a personal guarantee will be required from the business owner to secure the loan – which rather renders meaningless the Government guarantee and is the cause of some controversy at the moment

• the rates on these loans will vary lender to lender, as it did with the EFG scheme.

Although this scheme is to be welcomed, lenders will be nervous and we expect loan finance will be difficult to obtain.

Covid-19 Corporate Financing Facility

Under the new COVID-19 Corporate Financing Facility, the Bank of England will buy short term debt from larger companies.

This will support your company if it has been affected by a short-term funding squeeze and allow you to finance your short-term liabilities. It will also support corporate finance markets overall and ease the supply of credit to all firms. All UK businesses are eligible.

More information is available from the Bank of England:https://www.bankofengland.co.uk/markets/market-notices/2020/ccff-market-notice-march-2020