By Daniel Jenking
To help survive the challenging trading environment, two sources of funds which businesses may wish to consider are the Coronavirus Business Interruption Loan Scheme (CBILS) and business interruption insurance.
Business Interruption Loans
Businesses in need of short term cash flow support as a result of the Coronavirus, may be able to apply for a Coronavirus Business Interruption Loan, particularly whilst the Job Retention Scheme is being put in place.
The CBILS has been newly set up to support small and medium-sized businesses by facilitating access to loans, overdrafts, invoice finance and asset finance of up to £5 million and for up to six years.
The government is also offering to make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied fees in the CBILS facility, so smaller businesses will benefit from no upfront costs and lower initial repayments.
To be eligible for this Scheme, the applicant business needs to:
be UK based, with a turnover of no more than £45 million per year; and
meet the other British Business Bank eligibility criteria, which can be found on their website.
Subsequent to the introduction of the CBILS facility, the government has announced some changes in a further effort to support small and medium-sized businesses. In particular, lenders under this Scheme have been banned from requiring personal guarantees in loans under £250,000. Additionally, personal guarantees required on loans above £250,000 must be limited to 20% of the loan outstanding after other recoveries from the borrower. These changes also apply to loans already granted under the Scheme. This announcement should provide some reassurance to those involved in newly struggling businesses wary of the risk to their personal assets in utilizing the CBILS facility.
The government has also further improved access to loans under the CBILS facility by removing the former requirement that applicant businesses must have been unable to secure regular commercial financing. It is likely that this will act to decrease the checks needed to grant these loans, making the Scheme more accessible and, crucially, reducing the time between application and funding.
There are 40 accredited lenders able to offer the Scheme, including all major banks, though it is understood that more lenders may be accredited under the Scheme in due course. Business owners can apply using their chosen lender’s website.
There is a separate large business interruption loan scheme for businesses with a turnover in excess of the £45 million limit.
For further detail, please click here.
Business Interruption Insurance
Numerous businesses are suffering losses arising out of the Coronavirus outbreak as a result of closure of trading premises, staff absence and loss of custom. In these circumstances, many are looking to their existing insurance policies to determine what cover they might have.
It is not uncommon for businesses to maintain business interruption policies to cover losses arising where the business must close or cease trading for certain reasons. The government has declared COVID-19, the disease caused by the novel Coronavirus, as a ‘notifiable disease’, which under the terms of some policies is a prerequisite for a disease - related claim.
That said, whether losses caused by closures and cancellations caused by the Coronavirus are covered will depend on the terms of the relevant policy, which should therefore be checked closely. Unfortunately, it is believed that many policies are designed only to cover more typical losses, and not extraordinary situations such as the Coronavirus crisis.
In some policies, it may be that losses will only be covered to the extent that the government has required that business premises close or cease trading, or where an actual instance of disease has caused the loss, and not precautionary measures being taken.
Given the above, we suggest businesses carefully review the terms of any insurance policies they have in place as the situation develops to ensure that any cover that may be available is fully utilised.
Further guidance can be found here.
For further information, please contact a member or our Business Law team.