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The Coronavirus Business Interruption Loan Scheme (CBILS) was one of the first measures that the Government announced to support businesses hit by the coronavirus outbreak. An initial £330bn of easy to obtain lending from high street banks and 80% guaranteed by the Government was intended to flood into the economy and prop up viable businesses struggling with cashflow problems. The Government would pay the upfront arrangement fees and the initial year’s interest payments and directors would not be required to secure the loans on their property.

Practical Problems with the Coronavirus Business Interruption Loan Scheme

In reality the Coronavirus Business Interruption loan scheme has been widely criticised by businesses who have been unable or unwilling to access the promised borrowing. The Government have admitted that while they have received more than 130,000 applications for the CBILS, fewer than 1,000 have actually been approved. In fact, only £145m of the initial predicted £330bn has so far been lent out to businesses in need.

The main problem seems to have been how the banks have applied the CBILS scheme rules. A key sticking point has been the initial requirement that banks should look at whether they can lend on normal commercial terms before offering finance under the CBILS. Only firms failing this could then be referred for the CBILS scheme.

In practice, this has meant that businesses have had to go through their bank’s normal application process, which can be time-consuming and onerous. Stories have been circulating of loans being offered at very high interest rates and requiring personal guarantees from the directors and shareholders.

The New Improved CBILS Scheme

The Government have announced the following key changes that should help get the money flowing out to into the economy:

The requirement to offer finance at normal commercial rates if possible has been scrapped opening up CBILS to many more businesses and speeding up the application process

Personal Guarantees can no longer be requested in any form for loans under £250,000

Banks still have discretion as to whether to request Personal Guarantees for loans in excess of £250,000, but recovery under a Personal Guarantee is capped at a maximum of 20% after the proceeds of all business assets have been applied

Primary Residences cannot be used as security for loans of any amount.

Larger firms with turnover between £45m and £500m will now have access to Government guarantees, but the Government will only guarantee up to £25m.

One remaining sticking point may be that it is still up the banks to set the interest rates they will charge, though we may still see a maximum cap introduced as part of the updated scheme. For loans up to £5m, the Government will still pay the first 12 months’ interest.

We help you understand your obligations as a borrower

If you are seeking finance under the CBILS but have questions about your obligations as a borrower and how you may be personally affected, then we are here to help. Contact us today to speak to our expert commercial legal team for advice and support.