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A guide to getting a business loan during COVID-19

The government’s CBILS and BBLS initiatives are helping SMEs across the UK to access funding. On 2 November, the government announced that the Coronavirus Business Interruption Loan Scheme (CBILS) will be extended until 31 January 2021.

A guide to getting a business loan during COVID-19
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  • Stuart Lawson
  • December 16, 2020
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How can SMEs apply for a government-backed loan?

Applications for the government backed loans schemes — including BBLS and CBILS — will be open until 31 January 2021. Companies will have the option to repay their loans over 10 years via a Pay as you Grow initiative. If a business finds itself in ‘real trouble’, six-month interest-only payments and payment holidays are available. 

Currently, there are over 100 accredited lenders providing finance to businesses through the CBILS scheme. As an adviser to your SME clients, you can help by connecting them to a reliable source of funding and providing them with accurate information. To support you with this, here’s everything you need to know about the government loan schemes:

What do SMEs need to apply for a CBILS facility?

Firstly, the business must be UK-based to apply for government-backed support. For a BBLS loan they must submit a short online application form and self-declare that they’re eligible and that their business has been adversely impacted by COVID. 

For CBILS loans, SMEs will be asked to self-certify and may have to provide the following:

  • Details — how much they want to borrow, what it’s for & the repayment period; and
  • Documents — management and accounts, business plan & assets info.

The type of documentation requested will depend on the lender, and it may still be possible to get a CBILS loan even without access to all of the above. To qualify for the CBILS, your clients’ annual turnover can’t be over £45 million. If the business wants to borrow £30,000 or more, they must not have been classed as a business in difficulty.

What are the CBILS features & benefits?

CBILS loans of up to £5 million are partially guaranteed by the UK government to encourage lending. The government makes a Business Interruption Payment to cover the first 12 months of the loan’s interest payments, together with any lender-levied charges. 

The borrower is always fully liable for the debt.

Fortunately, no personal guarantee is required for loans under £250,000. For those that exceed the threshold, a personal guarantee may be required at the lender’s discretion. 

However, if this is the case, recoveries are capped at 20 per cent of the outstanding balance of the CBILS facility after the proceeds of business assets have been applied. 

Principal Private Residences (PPR) are exempt.

  • Loans of up to £5 million
  • Government-backed, partial guarantee
  • Government covers first 12 months of interest payments
  • No guarantee fees for SMEs

What loan types are available through the CBILS?

Businesses are experiencing different types of challenges throughout COVID, which is why CBILS loans come in a few different forms. Your clients can apply for:

  • A term loan - finance repaid in regular payments over a set period of time. 
  • Overdrafts - a line of credit that can boost short term cash flow.
  • Invoice finance - borrowing money based on what your customers owe.
  • Asset finance - used to spread the cost of new business purchases.

Can I convert my BBLS loan to a CBILS loan?

If an SME received a loan though the BBLS to cover working capital needs but require over £50,000, it may be able to take out additional funding through a CBILS loan—as long as the new funding settles the original.

COVID-19: Finding an alternative business loan

If you have a client who is not eligible for one of the government’s loan schemes, not to worry - there’s a vast selection of alternative finance products available, including:

  • Unsecured business loans — finance of up to £250,000 with no security. Suited to businesses with no/few assets, don’t want to offer security or need finance quickly.
  • Revolving credit — pre-approved funds with a rolling agreement. A good alternative to business overdrafts and often more accessible.
  • Bridging finance — a type of short-term business loan designed to get you from A to B until you can pay it off or secure longer-term finance.
  • Asset refinance if your client has an asset to refinance, this can be used to free up working capital.
  • Merchant or business cash advance if your client receives a significant percentage of takings through card payments, a merchant or business cash advance could be the right solution to provide finance against card takings

Stuart Lawson, CRO at Funding Options

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