Rishi Sunak was quick to come to the aid of SMEs impacted by COVID-19, promising to do “whatever it takes to support the economy” in his Budget 2020 earlier this month.

One such measure to boost UK business was the introduction of the Coronavirus Business Interruption Loan Scheme (CBILS) through the British Business Bank. In his initial announcement, the scheme was to see banks offer loans of up to £1.2 million to bolster SME cash flow. Barely a week later Sunak boosted the CBILS, upping the funding to £5 million.

So how exactly does the CBILS work? Which businesses are eligible and how do they apply? How has the CBILS been received by SMEs so far? We’ll answer all of these questions and more.

What is the CBILS?

The British Business Bank describes the CBILS as a scheme which “provides financial support to SMEs across the UK that are losing revenue, and seeing their cash flow disrupted, as a result of the COVID-19 outbreak”. But that in itself doesn’t really explain how SMEs are supposed to access this financial support.

How does the CBILS work?

The key point to wrap your head around is that the British Business Bank isn’t lending directly to SMEs. Instead, they’re operating CBILS through their network of accredited lenders who will actually provide the funds.

These lenders (high street and challenger banks, asset-based and specialist lenders) are encouraged to lend through CBILS because they get a government-backed guarantee on the repayments. Any business that accesses funding through the CBILS is still liable for the debt.

Here are some key features of the CBILS according to the British Business Bank’s website:

Funding: Facilities up to £5 million, available on repayment terms of up to 6 years.

Guarantee: A government-backed, partial guarantee against the outstanding balance of the finance is provided to the lender.

Debt: The borrower is 100% responsible for the debt.

Interest and fees: The Government will make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied charges.

Security: Here’s where things get a bit more complex. In summary:

1. If lenders can offer an SME finance on normal terms without using the CBILS, then they should do so
2. Lenders can offer unsecured finance facilities of up to £250k through the CBILS
3. Lenders can only use CBILS for finance facilities over £250k if they can prove to the British Business Bank that the SME isn’t able to provide security
4. Primary residual property can’t be used as security under the CBILS

What forms of finance does the CBILS include?

Despite what the name suggests, the CBILS doesn’t refer solely to traditional term loans – although these are included. Here’s a complete list of financial solutions:

• Terms loans – a fixed amount of money borrowed for a fee and then paid back (with interest) in regular installments over an agreed period of time
• Overdrafts – a kind of short-term loan where a business is able to spend more money than what is actually in their account subject to a pre-agreed limit, interest rate and fee
• Invoice finance – a solution that enables a business to advance funds already owed to them in outstanding invoices, subject to interest and fees
• Asset finance – a loan taken out for the specific purpose of purchasing an asset such as machinery or equipment

Who is eligible for funding through the CBILS?

Funding through the CBILS is only available to SMEs whose business activities are UK-based and are turning over no more than £45 million. The British Business Bank hasn’t stipulated a minimum turnover in their CBILS guidelines for SMEs. There are two additional, and very important, factors included in the CBILS eligibility criteria.

Firstly, an SME’s application for funding must be one that the lender would have considered viable under normal circumstances. In other words, if there was no pandemic and the CBILS didn’t exist, the SME’s application for funding would have been accepted based on the lenders’ standard eligibility criteria.

Secondly, the lender must believe that the funding the SME has requested will allow them to trade out of any short/medium-term difficulty. There’s no elaboration on this point in the guidelines but we can interpret it to mean that the funding will be sufficient to keep the business running. And, in doing so, work their way into a financial position where they’ll be able to repay the debt.

How do you apply for funding through the CBILS?

There’s no special way to apply for funding through the CBILS. The guidelines recommend that SMEs simply “approach the lender” through their website. The British Business Bank’s list of accredited lenders is available on their website and currently includes mostly high street banks and other traditional lenders.

What do smes think about CBILS?

This week has seen a growing undercurrent of SME frustration in the press and on social media. Many businesses are impatient, questioning why they haven’t yet received the financial support promised by the CBILS. Others who have applied for funding through the CBILS have been turned down or blindsided by confusing security criteria.

A MarketFinance survey of 5,000 SMEs found that only 52% are considering taking advantage of the CBILS. When asked why this is, 67% said they already had an existing loan. The majority of these SMEs (36%) said their biggest concern was taking on additional repayments, given the current economic climate.

The views expressed by these SMEs are largely based on the current situation in which the majority of accredited CBILS lenders are only offering term loans. This doesn’t align with the demand in the market for the type of finance solutions SMEs feel comfortable with taking on in the face of COVID-19. The top 3 forms of finance that SMEs say they’ll choose before a term loan are overdrafts, business credit cards and invoice finance.

The CBILS and other measures designed to boost UK businesses are hugely beneficial in theory. But with 67% of SMEs worried they’ll have to fold before CBILS funding reaches them, the Government needs to rapidly change tact and find much faster ways to deliver these measures in practice.

Several Fintech business lenders, challenger banks and other alternative finance providers are currently lobbying the British Business Bank to become accredited CBILS lenders. These kinds of providers can move much faster than their more traditional counterparts and could be best-placed to deploy the funds that SMEs so desperately need.

NOTE: key updates were made to the CBILS on Thursday 3 April 2020