COVID-19 | Business interruption loans
COVID-19 | Business interruption loans
The Chancellor’s announcement for additional support to protect businesses was a welcomed sigh of hope – it could make the difference between businesses sinking or swimming.
We now have more details on this Coronavirus Business Interruption Loan Scheme (CBILS) and are also getting some information on how the banks will be dealing with the scheme. In this webinar, will look at who can qualify and what you are likely to need for a successful application.
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I think we can expect there to be many developments over the next few days and we'll keep you up to date as and when things change There are actually two schemes currently available. We will focus today on the coronavirus business Interruption loan scheme, but we'll look at that in the context of other Financial measures. You'll see on your screen that you're able to ask questions. So, please do ask questions along the way and I'll answer as many as I can. We'll also share a summary of questions with everyone after the webinar as an introduction to what we're going to talk about. We'll look at the main funding packages available to business. One of the packages is available to smes.
And the other is available to the largest corporates will think about what that currently means for businesses trapped in the middle. Well, then look at the specifics of the business Interruption loan scheme in particular will focus on the rules governing the scheme and this will be relevant in two ways firstly you need to know whether you qualify for the scheme. And secondly the rules of the scheme will have a bearing on how you frame your application to maximizing your chances of success. Finally.
We'll deal with a couple of Students and then pick up any other questions after the webinar. So let's kick things off with a list of the Main Financial measures introduced by the government over the last few days firstly we have the coronavirus business Interruption loan scheme, and that's what we'll focus on today. Then we have the covid corporate financing facility the CCF and these are the two big loan schemes. You'll also be aware of the job retention scheme announced on Friday and my partner's out we'll have a lot more to say about that over the next day or two.
Only there are miscellaneous package of tax and business rate deferrals that I think most people will be aware of so looking at the two loan schemes. What's the difference between them? The CCF is a lending facility from the treasury and the bank of England. This is a very large corporates the government describes them as strategically important.
It is aimed at businesses with the ability to issue commercial paper on the corporate debt markets qualifying campaign is will need to have an Seventh grade credit rating which is likely to be supported by one of the major credit ratings agencies for practical purposes. This is going to rule out the scheme for pretty much everyone who might be listening to this webinar today. So for that reason, I don't propose to look at the CCF in any more detail.
I think what is going to be much more relevant to people today is the business Interruption loan scheme will look at some of the detail on this scheme in a second, but I'd like to point out one really important part of the scheme, which is that it is only available to Businesses with a turnover of less than 45 million pounds we can therefore see that there is a funding gap for businesses that turnover more than 45 million, but not big enough to tap the commercial debt market. So so far the government has not announced any support for these businesses and they represent a huge and material part of our economy.
We're watching developments closely and we will update you with any new supporters announced the business Interruption loan scheme is A niche by the British Business Bank, this is the UK government's Economic Development Bank created to increase the supply of Finance to smes the scheme is operated by more than 40 accredited lenders. The accreditor de lenders include all of the main High Street Banks. So Lloyd's Barclays HSBC that Western Santander are all included as well as some of the Challenger Banks and asset-based lenders. You can see a full list of the participants on the British Bank British business bank's website.
As of last night most of the major Banks were redirecting people to the British Business Bank for more detail. And that makes me think that the banks are still working out their own policies in relation to the scheme, but some speculative details have been emerging this morning. So what do we know about the scheme? The first main headline is that the facility is for up to five million pounds, but this really does need to be thought of as the upper limit rather than the Baseline normal lend.
We've heard this morning that at least Some of the banks are setting test limits on the loan so that the loan must be less than either double the annual wage Bill and it must be less than 25% of the 2019 turnover. So the lower of those two amounts as I said earlier it's only available for businesses with a turnover of less than 45 million pounds and some banks are telling us that at least 50% of the turnover must be in the UK the facilities they can be term loans.
Overdrafts asset Finance facilities or invoice Finance facilities. There are some excluded business sectors, but these are areas such as Banking and public sector. So they're unlikely to be relevant to you in practice. Crucially, the applicant business must have and I quote a borrowing proposal which were it not for the current pandemic would be considered viable by the lender and for which the lender believes the provision of finance will enable the business.
To trade out of any short to medium term difficulty. Now, this is important because the government is making it clear that the scheme is only targeting businesses that could have borrowed before the pandemic. The government is also making it clear that the funding must be needed to enable the business to trade out of a short to medium term difficulty to demonstrate.
This applicants are going to need to have a well-thought-out business plan and cash flow forecasts and these are not quick to prepare and any business who wants to draw in the scheme should be starting to prepare these immediately. I think the next point is Central the government scheme guarantees 80% of the loan to the bank. Of course, this means that the bank is at risk for the other 25% and this has important consequences in particular. The banks are going to apply Their Own Credit Control policies to the applications. This is inevitably going to take time.
And any delays are going to be exacerbated by the sheer volume of applications and the fact that the bank's own systems are facing the same disruptions as the rest of us. So assuming you are able to qualify and get a business case approved by the bank. Then the government will cover the interest and fees for the first 12 months after drawing down. We're not yet clear on Capital repayment terms, but I think it's going to be at least six months before that kicks in there is no guarantee for ePub are payable by the applicant.
But the bank does have to pay a fee itself to access the scheme term loans and asset-based Facilities can have a term of up to six years overdrafts and invoice discount facilities can have a term of up to three years.
So turning to security lenders have discretion to make unsecured loans of up to 250,000 pounds, but for facilities above that amount they are required to establish what is described in the guidance as and I quote again a lack or absence of security prior to the business using the scheme the British business Banks guidance to lenders specifies that lenders must go through the process of verifying the availability of security according to their normal lending policies and to establish that there is either a shortfall or complete absence I think that point this is driving at is that the scheme cannot be used if the applicant has security that will make a conventional loan viable if the lender can offer Finance on normal commercial turns without the need to draw on the scheme then it must do so finally and this is a developing point this morning we're hearing that at least some of the banks are expecting to ask directors of borrowing companies and members of LPS to give personal guarantees for the whole of the loan although I've seen guidance elsewhere that banks are not allowed to ask for loans to be supported by the applicants main personal property this is clearly going to be an important factor in anyone's decision over whether or not to take out a loan you To think carefully about this and establish your own Banks position on guarantees as soon as possible and keep checking your bank's position on this may change from day to day even our to our so with all this in mind. What should you do? The first step is to look at the eligibility criteria such as the turnover threshold and decide whether you think you qualify and principal assuming you do qualify, then you should contact your bank as soon as possible.
You can apply to any of the providers but the practicality he's opening a new bank relationship particularly in the current climate means this is only likely to be viable with your existing Bankers in place open a dialogue with your bank. If you have a relationship manager, then contact him or her as soon as possible the British Business Bank advises applicants to apply online, but you'll be in a much better position.
If you have a relationship manager that you can contact recognize that the bank is going to have to prove to its credit committee that you have a viable business and that Provision of finance will enable the business to trade out any short to medium term difficulty. This means that you're going to have to have a proper business plan. Now, I recognize fully that this it will take a lot of time and there's a lot going on right now, but the key to the application process is going to be for you to make it as easy as possible for the bank to approve your proposal.
Think about the security that can be offered if you're looking for more than 250,000 pounds remember if you are able to offer security then the bank will require that you do that instead of drawing on the scheme crucially find out early on whether or not your bank is going to require personal guarantees for the full loan. This may well be the deciding factor for many people finally and this is a really important point. We need to recognize that the situation is moving fast and that the policies are changing by the day there has already been one major evolution of the business Interruption loan scheme and expect them way. They may well be many more new schemes may come online.
And we'll be monitoring the developments really closely. So thanks for listening to this webinar. I hope you found it useful in the current circumstances. I will answer a couple of questions now and we'll send a note of all the qas along with a recording of This webinar question 1 will it be difficult to apply? Yes. I'm afraid I think it is going to be difficult to apply it is going to be time consuming and we have to recognize that the banks themselves are.
Facing unprecedented disruption to their own systems and their own application processes. I think the key to this is to make any application as easy as it can be for the bank make the process easy for them the way to do that is for example going to your own bank where you've already got a relationship.
You don't have to deal with a know your client information presenting a business plan that shows that the sustainable and can demonstrate that your business is The trading out of this thinking about the security security requirements that we spoke about in the in the webinar. I think all of these things taken together, if you can make your application as user friendly to the bank is going to maximize your chances of getting the loan through and they expect the banks are going to respond to that favorably you certainly don't want to find yourself on the on the too difficult pile when there are so many difficulties out.
Are right now?
Question two. How long will it be before money is available. Now, that's a really good question. The money the government have said that the money should be available to be drawn down from now. We're having close conversations with the banks and we know that the banks themselves are in close conversations with the government.
But as we said earlier, we do have this circularity where the the British Business Bank is saying Check your bank for details. And each of the bank's at the moment certainly at the time of certainly this morning. All of the individual corporate banks are saying please have a look at the business British Business Bank add to that the time it is going to take to get together a really convincing business plan and cash flow forecast where all prior assumptions really are out of the out of the window right now and the strain that the banks themselves are facing.
I think it's going to be difficult to see any information any money coming out of the system with applications going in straight away. I think it's going to take at least a couple of weeks and that's a very optimistic View at least a couple of weeks before people are actually starting to draw cash down out of the system.
So to repeat them afraid what I said in reply to the previous question the secret to this the absolute key to this is to make your application as user-friendly to the bank as it possibly can be be if you'd like more information or if you have a specific query which would like to discuss in more detail then please do get in touch. All my contact details are on the first page..
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