The government has announced a new temporary Coronavirus Business Interruption Loan scheme, as part of a package of measures to help small business.
British Business Bank will deliver the loan scheme, which it says will be in place from week commencing March 23 to support SMEs to access bank lending and overdrafts. Interest rates will be similar to current bank lending.
The government will provide lenders with a guarantee of 80 per cent of each loan – subject to a per-lender cap on the number of bad loans it can claim for.
The scheme will support loans of up to £5m per small business. This new guarantee, which replaces the existing £500m Enterprise Finance Guarantee (EFG), will initially support up to £1.2bn of lending.
Like the EFG, the idea is to give lenders more confidence in approving credit decisions for small businesses that have insufficient security to meet the lender’s normal requirements. More than 40 lenders including the big four banks — Barclays, HSBC, Lloyds and RBS — provide funds under the scheme as either loans, overdrafts or asset-based lending secured on equipment or invoices.
However, the Coronavirus Business Interruption Loan will offer more attractive terms for both small business and lenders than the EFG.
Finance terms will be from three months up to 10 years for term loans and asset finance and up to three years for revolving facilities and invoice finance.
Lenders will not charge small businesses or banks for this guarantee. And the government will waive the 2 per cent it charges borrowers annually for the EFG guarantee.
However, the small business borrower will always remain 100-per-cent liable for the debt.
Is your small business eligible for a Coronavirus Business Interruption Loan?
To be eligible for support via CBILS, your small business must:
- Be UK based, with turnover of no more than £41m per annum
- Operate within an eligible industrial sector
- Confirm that you have not received €200,000 of state aid over the current and previous two fiscal years
- Have a sound borrowing proposal, but insufficient security to meet your lender’s normal requirements