CBILS was launched to help businesses in times of COVID-19. Here it is explained - plain and simple.
CBILS is a programme run by the British Business Bank to support businesses who can afford lending products but lack the security necessary to be approved.
Since the announcement on 17th March 2020 by chancellor Rishi Sunak the government will require lenders to provide 12 months interest-free
“The Government will also cover the first 6 months of interest payments, so businesses will benefit from lower initial repayments. The business remains liable for repayments of the capital. The maximum value of a facility provided under the scheme will be £5 million (the original announcement suggested a maximum value of £1.2 million.)”
Lenders typically look for 1.5-2x serviceability cover based on EBITDA less Dividends less Current Debt Repayments (retained earnings)
If a business seeks a loan of £180,000 over 5 years at 5% interest, the annual repayments are £39,780.
The business must therefore generate c£75,000 of retained earnings to evidence serviceability of this new loan. If the business is unable to evidence this level of serviceability, a lower quantum offer may be made or a potential decline.
The borrower will always be responsible for repaying the loan. The government will only repay the loan if the business cannot - up to 80%.
Consequently, the financial institutions are still taking a risk on the lend. Our view, at Capitalise.com, is that lenders will only lend to businesses that have recently shown affordability to support the loan.
Our initial workflow is for accountants and advisers. If you as a business owner wish to apply for a CBILS loan then you may wish to go direct to the partner page or contact us to create an application for you.
A significant factor in the lending process is the “Time to Funds”. I.E how long does it take from submitting an application to receiving money in your account to pay e.g. rent, payroll and suppliers.
Our estimation is that this will be around 2 - 4 weeks for unsecured (meaning mostly term loans or invoice finance) and 4 - 12 weeks for secured (lending secured against property, assets etc).
The reason for this is that secured finance will typically require processes such as property valuations or second charges. Many of which take multiple weeks even at the best of time.
As a result, businesses may wish to apply for non-CBILS products alongside CBILS to have a wider range of options to choose from.
At present, the government has indicated that primary residence is not required as part of the CBILS security for the majority. The Big Four banks have agreed that they will not take personal guarantees as security for lending below £250,000 under CBILS.
While EFG were not available for refinancing the CBILS scheme, the government has shared guidance that CBILS is expected to be available to refinance existing loans. This will be part of the underwriting process from each provider.
Businesses much be eligible for CBILS products based on their business history. The business must: