New measures to support business
On Friday 20th March, the Government announced a number of temporary measures to support businesses through this period of disruption caused by COVID-19.
One of the key packages open to SME business is the Coronavirus Business Interruption Loan Scheme (CBILS). This scheme will be delivered by the British Business Bank and has been launched to support primarily SME businesses in accessing bank lending and overdrafts.
The key feature of CBILS is that the Government will provide British Business Bank and its participating lenders with a government-backed guarantee of 80% on each loan to give lenders further confidence in continuing to provide finance to SMEs.
The maximum value of the facility under CBILS will be £5 million and the finance terms are up to six years for term loans and asset finance, and up to three years for revolving facilities and invoice finance.
In addition, it is proposed that businesses will be able to access the first year of the loan interest-free, as the Government will cover the first 12 months of interest payments. Although the terms being offered are favourable, companies that borrow will remain 100% liable to repay their CBILS loan as with any other form of debt.
You may be eligible for CBILS if you can answer ‘yes’ to the following:
- Is your business UK based?
- Does your business have an annual turnover of less than £45 million?
- Does your business operate within an eligible industrial sector?
- Can you confirm your business has not received de minimis state aid beyond €200,000 equivalent over the current and previous two financial years?
- Do you have a borrowing proposal which, if it were not for the current pandemic, would be considered viable by the lender?
- Does your borrowing proposal enable the lender to believe that this finance will enable the business to trade out of any short-to-medium-term difficulty?
The full details and eligibility criteria of CBILS can be found on the British Business Bank website.
It is recommended in the first instance that all SMEs speak with their banks to determine all options available to them. If you have existing borrowing, you may also want to consider asking your bank for a payment holiday in the first instance rather than taking on additional debt.
It is anticipated that the usual rules will apply in relation to directors’ duties to avoid wrongful trading when taking on this additional debt. Directors will need to satisfy themselves that doing so, it is in the best interests of the company (in a solvent situation) or its creditors (in an insolvency situation).
The duty to avoid wrongful trading means that when there is no reasonable prospect of avoiding insolvency, directors must take every step to minimise losses for creditors.
Seek expert advice
The trigger point for this duty arising can be difficult to identify, therefore it would be advisable for directors to seek legal advice if there are any concerns in respect of this as it is important to note that directors can be held personally liable if they do breach their duty in this regard.
We will be closely monitoring the detail of the scheme as it is released and will update you as soon as we know more. In the meantime, please do get in touch with us to discuss your concerns and how we may be able to assist and support your business at this time.