With much confusion around the CBILS, we spoke with a trusted contact of ours from one of the leading high street banks to gather their insight and practical pointers. Here’s what we learnt:
The starting point for a lender in terms of assessing whether to lend is the long-term viability of the business and their ability to repay the loan: would a lender consider the business for approval under normal circumstances?
A lender would need to see a good trading history; a good, logical explanation of the impact of COVID-19; what steps have been taken so far to deal with it; and a forecast which shows how and why they expect to recover. They will also look to base their viability assessment on pre-Coronavirus trading.
The lender needs to see detailed forecasts, including assumptions and risk and would prefer them to be prepared by an accountant.
A lender will also look at what other steps the business has taken to manage their cash flow e.g. PAYE deferment, deferred loan payments and furloughing staff. They want to see good evidence that the business will be able to cover any payments that have been deferred, including any deferred VAT due between now and the end of June.
If a business has other outside funders, then a lender is likely to want the other funder ‘to share the pain’, which means that they would expect to see them taking a repayment holiday, for instance.
The lender will not provide a loan if it is ultimately used to service other debt.
Personal Guarantees (PGs) and Security
It has now been clarified that banks cannot use a person’s home as security, nor are they able to take PGs for loans of less than £250,000. They are also limited to just 20% of any amount outstanding on the CBILS lending after any other recoveries from business assets for loans above £250,000.
However, banks will utilise other security available e.g. in commercial property if this is available, before utilising the Government guarantee.
Lender credit teams are taking around 3-4 days to review applications, but that is mainly down to the fact that the wording around the Government guarantee has not yet been agreed and consequently agreements have not been signed. If the loan agreement has not been signed, they are in some cases providing bridging finance in the form of an extended overdraft facility.
Are lenders considering new customers?
It seems that at present, most banks are only considering applications from existing customers as they do not have the capacity and available resources to take on any new clients.
Client questions raised by Champion to the lender
Businesses who so far have only been offered extensions to their existing facilities, how are these to benefit from the interest/capital repayment free arrangements?
Since the Chancellor’s announcement on 3 April 2020, banks should now be broadening their lending outlook and the advice is that these businesses should consider re-apply.
If a business can repay its CBILS early, will there be penalties?
The bank we spoke to confirmed that there would not be any penalties.
If a CBILS facility is offered to a business, in general, what will it look like?
The business will pay no arrangement fees and no interest or capital repayments in the first 12 months (although this interest is calculated and paid by the Government).
The repayment period is five years, following this first 12-month period.
Champion is here to help you through your funding process. Please contact your Champion Director for assistance.