COMPARISON OF THE FORMER ENTREPRISE FINANCE GUARANTEE (efg) TO CORONAVIRUS (CBILS)

WHATS BETTER ABOUT THE CORONAVIRUS BUSINESS INTERRUPTION LOAN SCHEME (CBILS)

WHAT WE ARE SEEING
We have seen numerous comments on social media  and from directors with regards to the Coronavirus Business Interruption Scheme Loan Scheme (CBILS) not providing guarantee to "good directors", when they have to personally guarantee the lending,. As well as many surprised that security or personal guarantees are even requested.
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SOME CLARIFICATION
The truth of the matter is, this was announced by the Chancellor in the Budget 2020 as a scheme to temporarily replace the Enterprise Finance Guarantee (EFG) Scheme.

Both are government backed lending schemes, in which the lenders can seek personal guarantees and security.

The government back guarantee is for the lender, not the business. The guarantee is designed to facilitate the lending by banks in uncertain times, giving them more confidence to do so.

This is also a loan or overdraft, and there is a responsibility for the finance to be repaid by the business (just like any finance facility). If a business is later unable to repay the finance the lender has a duty to pursue all options to recover the monies, including from directors personally where personal guarantees are given. The government guarantee will only take effect when the lender is unable to recover the funds.

SO WHAT ARE THE IMPROVEMENTS?
As mentioned the scheme temporarily replaces the EFG Scheme, but with added benefits. These are:

• A higher level of backing to lenders, or 80% compared to 75% under EFG, as such lenders should be more prepared to lend to SMEs
• There is no guarantee fee for SMEs under the CBILS, unlike EFG
• The facilities are interest free in the first 12 months, so smaller businesses will benefit from lower initial repayments; and
• Any lender-levied fees are also covered in the first 12 months, so smaller businesses will benefit from no upfront costs.; and
• There is a higher maximum facility level of £5 m instead of £1.2 m
• At the discretion of the lender the need for security may be waived, and Primary Residential Property (PPR) cannot be taken as security under CBILS
• The scheme is also available to more businesses with a turnover of no more than £45m, (whereas EFG was a limit of £41m); and
• The borrowing proposals have to be for businesses that would be viable, if it were not for the impact of COVID-19, and will enable to the business to trade out of any short-to medium term difficulty. EFG was only for facilities considered viable under the lenders commercial terms.

In conclusion, the CBILS is an Improved version of the EFG.

For further details on CBILS see our COVID-19 HUB at https://www.lminsolvency.co.uk/funding--support-for-businesses-effected-by-covid-19.html