Coronavirus Business Interruption Loan (CBIL)
We had the opportunity today to listen to a webinar given by Piers Linney, formerly of Dragons Den fame who is also a non-executive director of the British Business Bank.
This has been highly intuitive as unlike the famous Ronseal advert from years ago, this loan offering will not be doing what it says on the tin!
Some key facts to come out of this:
- The British Business Bank is not actually a bank, but a Government backed fund. It therefore does not have a credit license to lend money so works alongside finance houses such as banks.
- It is not just restricted to loans but can relate to overdrafts and invoice discounting.
- You will still be 100% liable to repay the loan to the bank. Although the government is underwriting 80% of the loan, this is a guarantee to the finance provider who in the case of a default, will pursue you for the total debt as they would with any loan.
- The 80% guarantee provided by the Government is on the residual loan balance at the point of default. So, the finance provider (the bank) will always have capital at risk.
This is key as the banks will therefore view the loan as they would any other commercial borrowing arrangement, which as I am sure many of you will appreciate will make the lending criteria quite strict.
This loan facility is only available to you if your business will not qualify for normal commercial finance.
You will need to be able to demonstrate how you will finance the loan repayments to the point that you will have to provide the same if not more financial details such as business plans and cash flow forecasts.
The loan facility is not available to business startups or loss-making businesses no matter if trading was showing an upwards trajectory before recent events.
The Webinar was very sobering, it had a comments section and naturally the comments were of surprise and disappointment.
Where we have got to is this. To qualify for the CBIL, you would in all probabilities need to qualify for a loan based on normal commercial lending criteria. However, if you do qualify, the bank can turn you down for a CBIL on that very basis as that is one of the conditions of getting a loan! We are not sure who would qualify.
We are sorry for what is a very negative communication to you but all the fanfare surrounding this loan has been slightly misrepresented in our opinion. This is not a facility to tide businesses over while the business world temporarily shuts down.
If you still would like to apply for a CIBL, we will not discourage you from doing so, but please bear in mind the above.
If you do need finance for your business, it may be best to explore other angles such as non high street bank lenders like Funding Circle or exploring releasing equity in your property.
Brian and James