Coronavirus Business Interruption and Bounce Back Loans – What you need to know

The UK Government is currently offering assistance to SME businesses through a variety of different schemes arranged through the British Business Bank and their accredited lenders. Two of the most relevant to the SME and owner managed sector are the “Coronavirus Business Interruption Loan Scheme” or “CBILS” and the new “Bounce Back Loan Scheme” or “BBLS”. Here’s what you need to know:

Coronavirus Business Interruption Loan Scheme

CBILS loans have 80% of their value underwritten by the Government. In order to apply, SME businesses must satisfy the following criteria:

• UK based in its business dealings.
• An annual turnover of no more than £45m.
• A borrowing proposal which is viable.
• An adverse impact to the business from Covid-19.
• For loans of £30,000 or more, have not been classed as a “business in difficulty” on 31 December 2019.

Qualifying businesses can apply for a variety of assistance with a maximum of £5m. The types of lending include fixed term loans, overdrafts, invoice finance and asset finance. The overdraft and invoice financing can be taken out over a maximum term of 3 years, whereas the fixed term loans and asset finance have maximum terms of 6 years. The Government will also cover the first 12 months’ interest and charges through a Business Interruption Payment.

To further assist business owners, personal guarantees for a CBILS loan should only be required where the loan facility is over £250,000. Additionally, this personal guarantee is capped at 20% of the outstanding balance following sale of the business’ assets and owners should not have to provide their principal private residence as security for a CBILS loan.

It should be noted that, while the lender is provided with a Government-backed guarantee for a CBILS loan, the borrower will be 100% liable for the debt and the lender will always seek to first recover payment from the borrower (and any personal guarantor, if there is one) before relying on the Government guarantee.

Bounce Back Loan Scheme

The BBSL provides businesses with smaller loans of between £2,000 and £50,000. Some key features to note are as follows:

• The borrower will pay no fees or interest for the first 12 months and the interest rate for the duration of the loan is capped at 2.5%.
• The loan is capped at 25% of turnover or £50,000 (whichever is the lowest).
• As with the CBILS loans, the maximum term for BBSL loans is 6 years.
• There is no early repayment charge.
• You cannot apply for both a CBILS loan and a BBSL loan. If you have already applied for a CBILS loan but would prefer to change it to BBSL, this may be possible and you should contact your lender for further information.
• The Government guarantees 100% of a BBSL loan. Though, as above, it must be noted that the borrower remains 100% liable for repayment of the debt.
• No personal guarantees are required.

The UK Government has provided a wide range of financial assistance measures due to the Covid-19 outbreak and they are not limited to the two mentioned here. You can find further details of the schemes on the Government’s Coronavirus Financial Support Finder and on the British Business Bank website. Applications for the various loans should be made directly to your bank.

BHW can help you should you require any legal advice in relation to a CBILS or BBSL loan, including reports on loan agreements and independent legal advice in relation to personal guarantees. We can provide a fast turnaround to help you get your funds quicker and (subject to your bank’s consent) will provide all personal guarantee advice via video call. Should you require any assistance, please do not hesitate to contact Matt Worsnop on 0116 281 6235 or email matt.worsnop@bhwsolicitors.com.