Coronavirus Loan Schemes Explained

The impact of coronavirus has been felt by business owners across the UK. You’ve had to change and adapt at lightning speeds to keep up with the ever-evolving situation and, for many, funding is more important than ever. If you’re looking at the funding options available to you, we’ve rounded up the key information on the Government’s new schemes to help you find the right choice for your business.

British Business Bank loan schemes

Many of the Government’s loan schemes are provided through the British Business Bank and a group of accredited lenders. The schemes are primarily focused on providing financial support to microbusinesses, SMEs, mid-sized and larger businesses who have experienced lost revenue and cash flow disruptions as a result of coronavirus. The schemes include:

  • Coronavirus Business Interruption Loan Scheme (CBILS)
  • Coronavirus Large Business Interruption Scheme (CLBILS)
  • Bounce Back Loan Scheme (BBLS)

Businesses using these schemes are able to apply for up to 25% of their annual turnover. However, businesses are only able to have one of the Government’s loan schemes, or the Bank of England’s Covid Corporate Financing Facility Scheme (CCFF), at any one time. If you have one of these loans already, you can still apply for another scheme, but the loan amount would need to be enough to refinance your existing loan in full.

Coronavirus Business Interruption Loan Scheme (CBILS)

What is it?

The catchily named Coronavirus Business Interruption Loan Scheme (CBILS) offers loans from £50,001 to £5 million. It can take multiple forms, including term loans, overdrafts, invoice finance and asset finance.

Features

The Government will cover the first 12 months of interest payments, as well as any fee to take out the loan charged by the provider. Further features of the scheme include:

  • Loan terms and asset finance facilities for up to 6 years
  • Overdrafts and invoice finance up to 3 years
  • No personal guarantees for facilities under £250,000
  • Personal guarantees may be required for facilities above £250,000, excluding Principal Private Residence (PPR). Recoveries are capped at maximum of 20% of the outstanding balance of the CBILS facility after proceeds of business assets have been applied

As Funding Circle is an accredited lender under the Government’s Coronavirus Business Interruption Loan Scheme, we can offer our fast application process under CBILS. As well as the Government paying the interest for the first 12 months and upfront fee, you also won’t need to make any repayments for the first 12 months:

  • Loans between £50,001 and £250,000
  • Rates between 1.8%-7% APR
  • Loan terms between 2 to 5 years
  • No repayments for the first 12 months
  • Government covers the first 12 months of interest payments
  • Government covers the upfront fee
  • No early settlement fees
  • Decisions typically within 24 hours

Eligibility

To be eligible for a Funding Circle CBILS loan, the following criteria applies:

  • UK-based business that’s been adversely affected by coronavirus
  • Turnover of over £200,000 
  • Minimum 3 years of trading history
  • Over 50% of turnover from trading activity (e.g. not from investments)
  • Loan is for business purposes
  • Loan is primarily for trading in the UK

Coronavirus Large Business Interruption Loan Scheme (CLBILS)

What is it?

The Coronavirus Large Business Interruption Loan Scheme (CLBILS) offers loans up to a maximum of £200 million. Finance through the scheme can take the form of term loans, overdrafts, invoice finance and asset finance.

Features

The features for CLBILS include:

  • Finance terms from 3 months to 3 years
  • No personal guarantees for facilities under £250,000
  • Personal guarantees may be required for facilities above £250,000, however claims cannot exceed 20% of losses after all other recoveries have been applied
  • Businesses pay a commercial rate of interest

Eligibility

To be eligible for a CLBILS loan, you must meet the following criteria:

  • UK-based business that’s been adversely affected by coronavirus
  • Turnover of more than £45 million
  • Unable to secure regular commercial funding
  • Must have a borrowing proposal that the lender believes would enable you to trade out of any short-term to medium-term difficulty
  • Businesses cannot be in a restricted sector eg. banks and building societies, insurers and reinsurers (but not insurance brokers), and public-sector organisations such as state-funded primary and secondary schools

Bounce Back Loan Scheme (BBLS)

What is it?

The Bounce Back Loan Scheme (BBLS) provides loans from £2,000 to £50,000.

Features

The Government also covers the first 12 months of interest payments, and borrowers under the scheme are not expected to make any repayments for the first 12 months. Unlike CBILS and CLBILS, the interest rate is set at 2.5% per annum, regardless of the provider. Other features include:

  • Fixed loan terms of 6 years
  • Early repayment is allowed, without early repayment fees
  • Lenders cannot take personal guarantees or recovery action over a borrower’s personal assets
  • No fees for businesses or lenders to access the scheme

Eligibility

The eligibility requirements for this scheme are as follows:

  • UK-based business that’s been adversely affected by coronavirus
  • The business must not have been in financial difficulty on 31st December 2019
  • Engaged in trading or commercial activity in the UK and established by 1st March 2020
  • The business must not be in bankruptcy, liquidation or undergoing debt restructuring at the time it submits its application for finance
  • Over 50% of turnover from trading activity (e.g. not from investments)
  • Business cannot be in a restricted sector (eg. credit institutions, insurance companies, public-sector organisations or state-funded primary or secondary schools)

What guarantee does the lender get through these schemes?

It’s important to note that borrowers are liable for 100% of any loan taken out under the CBILS, BBLS and CLBILS schemes. However, should the business be unable to repay the loan in full, the Government does provide a guarantee to the lender:

  • CBILS and CLBILS: 80% government-backed guarantee
  • BBLS: 100% government-backed guarantee

Coronavirus Future Fund

What is it?

The Coronavirus Future Fund is designed to help businesses that would normally rely on equity investment. It provides convertible government loans to UK-based companies, subject to at least an equal match funding from private investors. The scheme is open until the end of September 2020.

One important thing to note is that the Coronavirus Future Fund can only be accessed by investors connected to an eligible company, or the lead investor in a group of investors. Companies can register their interest in the scheme, but cannot apply directly themselves.

Features

The Coronavirus Future Fund provides loans from £125,000 to £5 million, and the scheme will match up to 100% of the amount provided by investors. A minimum 8% per annum (non-compounding) interest charge applies, and interest isn’t payable on a monthly basis. Instead, it accrues until the loan converts, where the interest will then either be repaid or converted into equity.

Unlike the other schemes, loans through the Coronavirus Future Fund can’t be repaid early by the company unless it is agreed with all investors involved. Investors and the scheme invest using a convertible loan agreement, which is predefined and can’t be negotiated. The loan also can’t be used to repay any borrowings or pay dividends, bonuses or advisory fees.

Eligibility

There is some criteria a business must adhere to in order to be eligible for the scheme:

  • The company must have raised at least £250,000 in equity from third-party investors in previous funding rounds in the last five years (from 1 April 2015 to 19 April 2020, inclusive)
  • If the company is a member of a corporate group, it must be the ultimate parent company
  • The company can’t have any of its shares or other securities listed on a regulated market, a multilateral trading facility, a recognised investment exchange and/or any other similar market, stock exchange or listing venue
  • The company must be a UK incorporated limited company
  • The company must have been incorporated on or before 31 December 2019

As well as the above, at least one of the following must be true for the company:

  • Half or more employees are UK based
  • Half or more revenues are from UK sales

Which scheme is right for my business?

Hopefully the above information has helped you understand the schemes in more detail. Broadly speaking, to help decide the right scheme for you, you should ask yourself two questions:

  • How big is your business?
  • How much are you looking to borrow?

If your business is a start up or early stage, you’ll likely want to look at the BBL scheme or the Coronavirus Future Fund for finance.

If you’re more established, you’ll then need to think about how much you want to borrow (and how much you can with the 25% turnover rule):

  • BBLS — Up to £50k (No turnover limit)
  • CBILS — £50k to £5 million (Turnover over £200k)
  • CLBILS — £5 million and above (Turnover over £45 million)

To check if you’re eligible for a CBILS loan of £50,001 to £250,000, apply online today.

It’s important to remember that when taking a loan your business is liable for the full loan amount. The CBIL scheme provides a guarantee to the lender, not to the business.

The Coronavirus Business Interruption Loan Scheme (CBILS) is managed by the British Business Bank on behalf of, and with the financial backing of the Secretary of State for Business, Energy and industrial Strategy (BEIS). Full details on CBILS eligibility criteria and the list of participating CBILS lenders can be found on the British Business Bank website.

All information is correct at time of publishing. While we want to help as much as we can, the information and documents found here are provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here.If you have any questions, please speak to your professional adviser or seek independent legal advice.