Banks are facing heavy criticism that only 2% of CBILS applications have been successful so far 4 weeks after the £330 Billion Government backed scheme was announced. What needs to be appreciated is that this is not a free giveaway. Some lenders have complained about the quality of the applications they are receiving; indeed, some are saying they just receive something that to all intents and purpose is a begging letter or email, asking for money. That’s not how it works with banks, any investor, funder, grant or charity provider or even borrowing money off a friend! These are loans and they must be eventually repaid.
To be eligible for the Coronavirus Business Interruption Loan Scheme (CBILS), businesses need to have been trading as viable UK corporate entities pre-crisis for at least 12 months and not operating in certain excluded sectors. For any loan, firms must have a viable proposition, plan and business model.
Common Criteria for Successful CBIL Application
Lenders will all have slightly different requirements that tick the boxes for a successful CBIL application but will have many common criteria which we set out below:
- Viability and Historic Financial Statements: Lenders expect evidence of the business’s viability, preferably over the past three years (excluding COVID-19 impact), supported by historic financial statements.
- Latest Management Information/Accounts: Providing the latest management information/accounts is beneficial, especially when dealing with your own bank, as it allows them to cross-check figures with cash in the bank.
- Affordability: The business must demonstrate its ability to afford the additional debt based on its latest 2019 accounts, ensuring sustainability beyond the pandemic.
- Loan Amount Calculation: A detailed breakdown of the loan amount calculation is crucial. Include all relevant details, and be cautious about requesting funding for payments to other finance providers.
- Exploring Government Support: Lenders may require confirmation that you’ve explored all available government support, such as the HMRC Furlough Scheme and Local Authority Grants.
- 3 Year Business Plan (Optional): While not mandatory, providing the company’s latest 3 Year Business Plan can be a significant advantage during the application process.
- Supporting Letter: Consider preparing a concise supporting letter that tells the story of your business, highlighting its activities, the impact of the crisis, mitigation measures, and forward-thinking strategies like diversification to address market demands.
So, in essence, currently, a bank would support applications following their normal business processes and the underwriting gates that go with that. If the application meets all of these policies including security, then they will proceed in the normal way, and if it meets all criteria then it will be a normal loan, however, in the absence of the availability of full security, Banks will consider CBILS, but do please keep in view the eligibility is very strict still.
Loan Security and Personal Guarantee
All loans must be eventually repaid. The Government is providing 100% security cover to banks in event of default for loans up to £250k and so in our experience, this should be a natural ceiling for most SME business owners to consider or else, they will have to put up at least a 20% Personal Guarantee in the event of default. Clearly some lenders will ask for much more security, if it is available. Remember, a £250k CBIL over a 5-year term should only cost £4-5k per month depending on the lender but could save your business and help you get through the short-term trading difficulties For borrowing of amounts above £250k up to a £5m lending ceiling, personal guarantees will be asked for. However, they are limited to 20% of the lender’s actual loss. Importantly, your house is not allowed to be taken as support for a guarantee.
Attractive Features of CBIL
With 12 months interest free and no lending fees, CBIL is an attractive source of business funding and potential borrowers should not be deterred by the low application success rate, as CBIL could be a key component to the survival of their business. We at PCW Consulting Group have a 100% success rate for our clients in securing successful CBIL outcomes and have engaged closely with lenders to make sure that we are able to get those great results for our clients.
Seek Assistance for a Successful Application
If you or your accountant would like assistance pulling a suitable package and application together, please contact private@pcwconsultinggroup.com and one of the senior exec team will contact you for a free initial consultation.
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