Bank Lending during Covid-19
The government has implemented a number of schemes to assist businesses during these uncertain times.
When the Coronavirus Business Interruption Loan Scheme (CBILS) was first introduced, it was designed to assist small businesses with access to loans quickly and on favourable terms. The list of banks offering the loans are available here.
Whilst these loans were meant to ease the pressure on businesses, there were inherent problems in the way in which these loans were being administered and the banks faced growing criticism on the administration of these loans. Loans were being denied to businesses, others were told they would have to wait weeks and businesses were being asked to pay interest rates of up to 30% and directors were being asked to put their own savings and property up as collateral.
The scheme was also targeted at those that were unable to get a loan on normal commercial terms. This meant that those wishing to take advantage of the scheme were being offered other commercial loans on less favourable terms.
The number of businesses taking up the offer of the loans was lower than expected in light of these problems. The government responded to the issue and a revised loan scheme has been implemented from 6 April.
The revised CBILS is now more accessible and it has been extended to those businesses that are eligible for loans on normal commercial terms. This means that banks can lend to businesses faster and more businesses can take advantage of the loans offered by the government. Businesses can use the scheme to borrow between £5,000 and £5 million. Personal guarantees from directors are no longer required if borrowing less than £250,000.
The lenders still have the authority to decide whether or not to offer finance but if one lender turns you down, you are able to approach the other lenders in the scheme.
The eligibility criteria for the loan is as set out below:
- UK based business
- An annual turnover of no more than £45 million
- A borrowing proposal that the lender would consider viable were if not for the current pandemic
- Self certify that it has been adversely affected by Covid-19
The government’s revisions to the loans included the extension of the scheme to larger businesses under the Coronavirus Large Business Interruption Loan Scheme (CLBILS). Loans are available to businesses with a larger turnover of between £45 million and £500 million. Businesses can take advantage of this to borrow up to £25 million and £50 million for those businesses with a turnover of more than £250 million on commercial rates of interest. In order to qualify for the CLBILS, the business must be unable to secure regular commercial financing.
You may be required to provide supporting documents including management accounts, cash flow forecasts, business plans, historic accounts and details of assets together with details of the amount you would like to borrow, what the money is for and the period over which the loan will be repaid.
Repayments can be made over a period of between 1 and 6 years and a capital repayment holiday will be available for 12 months at the start of the term whereby the government will meet interest payments for the first 12 months.
If you need more information on bank lending or would like to discuss any other concerns relating to your business operations then contact Shehla Pirwany e. ShehlaPirwany@rixandkay.co.uk or any other member of Rix & Kay’s Corporate Team