Business interruption loans were introduced in the Budget 2020 in the wake of the COVID-19 outbreak.
Because of the widespread impact of the virus on all aspects of our lives, many small businesses are struggling. Business interruption loans are just one measure that are intended to help these enterprises survive this difficult period and come through on the other side.
The scheme aims to ensure the continued provision of financial assistance to businesses who may have immediate cash flow issues during this challenging period.
What is a business interruption loan?
The Coronavirus Business Interruption Loan Scheme is a temporary measure to help businesses that are affected by COVID-19. It is meant to help businesses get approved for credit, whether that’s in the form of a loan, overdraft, or other types of funding such as invoice finance and asset finance.
Businesses can apply for up to £5 million of funding each.
Approved businesses won’t need to pay any lender fees or any interest payments over the first 12 months as the government will cover these initial costs. Some lenders may not charge any fees or early-repayment charges, but this will vary between providers.
The scheme will initially run for six months.
Finance terms for loans and asset finance will be up to six years; for overdrafts and invoice finance facilities terms will be up to three years.
Under the scheme, the government will provide lenders with a guarantee of 80% of the value of each loan, to make them more willing to provide credit. The aim is to encourage lenders to offer credit to those businesses that don’t have the security traditionally needed to meet the requirements for a loan.
The government guarantee is meant to act as a kind of replacement security for the loan, to make lenders more confident and willing to approve credit applications from businesses that would otherwise have been rejected. It aims to help struggling SMEs to access finance, at a time when banks and other lenders may perhaps be unwilling to lend to riskier prospects due to the economic uncertainty.
Delivered by the British Business Bank, the scheme temporarily replaces the Enterprise Finance Guarantee (EFG) which launched in 2009.
Unlike the EFG, however, business interruption loans carry no extra charge for businesses. Under the EFG, borrowers had to pay a percentage of charges to the government for their guarantee, but the business interruption loan scheme has no such fee.
Businesses should note that the government guarantee is to lenders, not to borrowers. The business is still fully liable for the debt and responsible for paying it back.
How can I apply for a business interruption loan?
The Coronavirus Business Interruption Loan Scheme (CBILS) launched on 23rd March 2020.
Businesses will need to apply directly to participating lenders, starting with their current provider if possible. All four of the big-name banks are part of the scheme, as are many other lenders.
After you apply, the lender will then decide whether to approve your application.
Businesses can apply for loans of up to £5 million each.
The scheme can offer unsecured lending for funding under £250,000, at the discretion of the lender. For loan facilities above the value of £250,000, the lender will need to establish a lack of security before the business can access the scheme.
Primary Residential Property cannot be used as security for a business interruption loan.
Am I eligible for a business interruption loan?
Businesses that don’t meet a lender’s normal lending requirements but have viable long-term prospects may be eligible for a business interruption loan.
To be approved, businesses will need a borrowing proposal that, were it not for the COVID-19 pandemic, would be viewed as viable by the lender. Funding is intended to help businesses trade out of any short-to-medium term difficulties.
Businesses will need to meet some other eligibility criteria too.
To receive a business interruption loan, businesses must be based in the UK and have a turnover of £45 million per annum or lower.
There is a small number of sectors that won’t be able to benefit from this scheme, or may face further restrictions, such as fishing, agriculture, the public sector (including state-funded schools), banks, and insurers.
What other support is available for businesses?
The Coronavirus Business Interruption Loan Scheme is not the only policy that has been announced to help businesses during the COVID-19 outbreak. In a press conference on 17th March, Chancellor Rishi Sunak committed to providing a £330 billion package of government-backed loans and guarantees to assist businesses with their costs, and promised to provide more funding if needed.
He also confirmed that the government advice to avoid public spaces like pubs, clubs, and music venues, means these businesses are entitled to make claims on their insurance policies, if they are covered for this kind of event.
In the Budget, it was announced that the Business Rates retail discount would be extended. This has since been expanded further, meaning that all businesses in the retail, leisure, and hospitality industries are exempt from paying business rates in 2020-21, irrespective of their rateable value.
Businesses in these sectors with a rateable value between £15,000 and £51,000 can also receive a cash grant of £25,000, in addition to the business rates holiday.
Small businesses that already qualify for Small Business Rate Relief or Rural Rate Relief are eligible for a £10,000 grant to help with immediate and ongoing costs. Local authorities will contact eligible businesses- there is no application process.
As detailed in the 2020 Budget, SMEs will be reimbursed for any Statutory Sick Pay (SSP) they have paid to employees who have been off work due to COVID-19.
Where can I go for more information?
Further information on the Coronavirus Business Interruption Loan Scheme, and the other business support measures, will be available on the British Business Bank and on the government website as soon as the details are released.
How can I compare other business loans?
The Coronavirus Business Interruption Loan Scheme is intended to help businesses that would otherwise have been rejected for credit by lenders, because of their lack of security.
Businesses that do have sufficient security, and would be accepted for credit without the help of the scheme, could compare and apply for business loans in the usual way to see if they can find a suitable funding option.
For more information on how to start applying for funding, take a look at our guide to preparing for a business loan.