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.
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:
One would expect viability to have been evidenced over the course of preferably, the prior three years, excluding the impact of Covid-19 (an average is acceptable) and evidence will be required, which we would expect to be in the form of historic financial statements.
Latest Management Information/Accounts is also very helpful. Do remember that your lender, if it is your own bank, will be matching cash in the bank against your unaudited management information as a sense check on any figures you submit.
Affordability. The business needs to evidence it can afford the additional debt. We do that based on your latest 2019 accounts. The idea being that if the business could afford it in 2019, it should be able to afford it once the pandemic is over.
Loan amount. How much do you need and how has this been calculated? A full breakdown of how you got to the amount. It needs to be detailed so somethings like: fixed costs of £xx wouldn’t be enough. Please note, that while other finance providers payments are not excluded, it might be frowned upon if banks are being asked to fund other financiers payments. They need to be contacted to see what financial assistance they can give, i.e. payment holidays.
Finally, part of the relationship manger’s application for some banks is to confirm that you have explored all avenues of support, especially those from government, such as HMRC Furlough Scheme, Local Authority Grants such as Business Rates rebates of £10k for most and £25k for retailers.
Enclosing a copy of the company’s latest 3 Year Business Plan is not being asked for but, in our experience, is a very big bonus point.
The above is all about evidence, justification sand business case but what is also proving fruitful, is to pull some of the pertinent points in the above into a supporting letter which tells a story of the business extremely briefly, what it was doing, how this crisis is impacting on the business, mitigation measures that are being undertaken, and this includes outwards thinking about diversification of products or service offerings, and/or escalating positions with clients and markets that are still in demand.
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.
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.
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.
If you or your accountant would like assistance pulling a suitable package and application together, please contact email@example.com and one of the senior exec team will contact you for a free initial consultation.← Back to all articles