Rule change unlocks CBILS for more businesses
Recent changes to the European Union’s state aid rules mean more companies will now qualify for the Coronavirus Business Interruption Loan Scheme, commonly known as CBILS, from 30th July.
The Chancellor launched CBILS back in March to support businesses as the country went into lockdown. The scheme allows companies to borrow up to £5 million, with 80% of the loan guaranteed by the government and no interest payments for the first 12 months. Mr Sunak belatedly changed the terms, so a personal guarantee is only required for 20% of the balance above £250,000. Despite well-documented delays in distributing the funds, and a higher take-up of the Bounce Back Loan Scheme (BBLS), CBILS has approved over 55,000 loans worth £12.2 billion according to the latest figures.
One of the original problems with CBILS was it excluded companies from applying if they were classified as an ‘undertaking in difficulty’ on 31st December 2019 and requested a loan of £30,000 or more.
To briefly recap, state aid is support provided by a government to a company which gives it an advantage over its competitors. The rules to limit it, unless justified for purposes of economic development, are in place to ensure what is known as a level playing field. You may have come across this term in the media recently as it’s one of the issues holding up Brexit negotiations.
In terms of SMEs, the EU’s definition of an ‘undertaking in difficulty’ is a company that finds itself in any of the following circumstances:
- A limited company, less than three years old or within seven years of its first sale, with accumulated losses of more than half of its share capital
- A company without limited liability, meeting the criteria outlined above, with accumulated losses of more than half of its capital
- The company is subject to insolvency proceedings
- The company is in the process of repaying rescue aid or is still subject to a debt restructure plan
These criteria meant many early-stage companies, scaleups and those backed by private equity didn’t qualify for funding because they prioritise growth over profits. Some claimed the higher failure rate associated with this business model should deny them access to funding. Others argued that it wasn’t only unfair, but it was also unwise to exclude what are typically innovative companies. After all, they create jobs and drive the kind of growth required to recover from an economic slowdown.
However, the European Commission recognised that the lack of access to funding was causing these types of businesses significant hardship and many were at risk of bankruptcy. It responded by introducing a Temporary Framework which made several amendments to state aid rules. The latest change, allows governments to support micro and small companies even if they were in financial difficulty at the end of last year, as long as they have fewer than 50 employees and under £9 million in annual turnover and/or annual balance sheet total. The rules covering insolvency, unpaid rescue aid and debt restructuring still apply.
If your client's company falls within the revised criteria, and they were either refused a loan or didn’t think they were eligible in the first place, they haven’t missed out. The deadline for CBILS is the end of September. Don’t forget, your client can apply for both CBILS and BBLS (which incidentally isn’t affected by these changes) at the same time.
One caveat though- while the new rules allow more companies to apply, your client will still have to meet the lender’s criteria, and they could turn them down for other reasons. Swoop work with all the CBILS lenders, so will ensure a match with the right lender, significantly improving your client's chances of successfully securing a loan.
If you need support, get in touch with Swoop today. Registering an account and applying for funding for your clients is quick, straightforward and completely free.