What can business owners expect from lenders once the Coronavirus Business Interruption Loan Scheme comes to an end?
With CBILS ending on March 31st, there will be a huge difference in what business owners can expect to be offered from lenders when they are looking to secure funding for their business.
Over the last 12 months, businesses that have been eligible, have been able to take advantage of:
- 12 months capital repayment holiday
- First 12 months interest covered by the government
- Set up fees being paid by the government
- No Personal Guarantee required for any borrowing up to £250,000
- The owners principal residence not forming any part of security for borrowing above £250,000
- A debenture only required on a case by case basis
What will business owners be offered moving forward?
All the details haven’t yet been fully confirmed but here’s what we do know:
- The RECOVERY LOAN SCHEME will replace CBILS and comes into effect from 6th April
- It will offer term loans from £25,001 and Invoice/Asset Finance facilities from £1,000, up to a maximum of £10m.
- Businesses that already have a CBILS will still be eligible to apply for a facility through the Recovery Loan Scheme.
- As is the case currently with CBILS, it is likely that if you already have a Bounce Back Loan, the lender will require this to be paid back in full.
There are similarities between this scheme and CBILS, and the following benefits will remain:
- No Personal Guarantee required for facilities up to £250,000
- The borrowers principal property cannot be taken as security
- The government’s 80% guarantee TO THE LENDER remains in place
What are the major changes that business owners need to be aware of?
- There is no capital repayment holiday – the borrower will start making repayments immediately
- The borrower will be repaying ALL interest – the first 12 months interest is NOT being paid by the government
- Any set up fees will have to be paid by the borrower – the government will not be paying these as they did on CBILS facilities
What we don’t know yet, is which lenders will be part of the scheme.
Without any restrictions on interest rates charged, we might expect that more lenders will join the scheme.
And the major question is how are lenders going to assess affordability?
If the business is not yet back to normal trading performance, how are they going to afford repayments from day one? This is where the loss of the capital repayment holiday could hugely affect the likelihood of a business making a successful application.
What to do right now
There are a few scenarios to consider if your business needs to inject some funding right now, or in the next 12 months:
- The Bounce Back Loan is still available up to the 31st March deadline – if your funding requirement is less than £50,000, then this is worth considering as the interest rate is capped at 2.5% for all lenders and you will still be able to take advantage of the 12 month capital repayment holiday, and the interest for that period will also be paid by the government. It is unlikely that we will ever see a more favourable finance facility, and once it’s gone, it’s gone.
- If you have already taken a Bounce Back Loan, but didn’t take your full entitlement, then you can still approach the lender and apply for a ‘top up’.
- If you already have a Bounce Back Loan, but are eligible for a higher amount than £50,000 then consider ‘upgrading’ into a CBILS facility.
- If you haven’t yet applied for a CBILS facility but you have already identified that you will require an injection of funds in the next 12 months, then check that you are eligible, and if so, consider making an application before the March 31st Deadline.
A few points to note
A business can only have either a Bounce Back Loan or a CBILS Loan
A business can take multiple CBILS facilities, so you could for example have a CBILS term loan and CBILS asset Finance facility
How can Ascendis help?
We have been working closely with many of the CBILS accredited lenders over the last 12 months and we can help you process your applications.
If all the information required is available then we don’t charge any additional fees to process this for you.
If you are unsure about what to do, get in touch now and we will try and assist as best we can.
Contact our Finance Director: Glyn.firstname.lastname@example.org or by calling 07519 871 870.