Firms that were previously locked out of the CIBLS (Coronavirus Business Interruption Loan Scheme) can re-apply now that the government has softened its rules. Many businesses, including ecommerce websites, were banned from the government loan scheme because they were already too deep in debt and classed as ‘undertakings in difficulty’.
This classification stemmed from EU state aid rules which regulate what kind of support governments are allowed to give private companies. They were in place to make sure that governments were not bailing out companies that were failing. However, these regulations were established prior to the COVID-19 pandemic.
So far, nearly 60,000 businesses have borrowed from the CBILS for a total amount of £12.6 billion. The loans are provided by high street banks, but are backed by the government up to 80%, meaning the government will take the hit should a business fail to repay the loan.
As of now, any kind of business so long as it has fewer than 50 employees and has a turnover of less than £9 million, can apply for the CBILS. Businesses can take out loans of up to £5 million. It has been reported that some banks are taking far too long to release funds and that some companies are unable to access funds because they are new customers.
A number of firms have applied for the scheme already and it remains to be seen all of these issues will help banks streamline the process or whether it results in an even bigger backlog. However, most business figures agree that widening the eligibility rules for the CBILS is a step in the right direction and will help firms get the help they require.
However, there are some experts who believe that expanding the scheme to companies already in severe difficulties will merely prolong the inevitable. These firms should be allowed to go bust without the government having to shoulder any of the cost. The Office for Budget Responsibility has forecasted for a default rate of 10% for the CBILS.
Many smaller businesses, many of whom have ecommerce website designs, have accesses funds through the BBLS (Bounce Back Loan Scheme) which provides finance of £2,000 to £50,000. This scheme has lent around £29.5 billion to just under a million businesses as of the 28th June and has proved to be a lot more popular than the CBILS. The Office for Budget Responsibility is expecting default rates of around 40% for these loans.
If you are a company seeking additional funding you won’t be able to apply for both schemes, so it is best to do some research before applying. There are over 15 accredited BBLS lenders while the CBILS has over 40 accredited lenders.
It is important to remember that if you get refused a loan by one lender, it doesn’t mean another lender will. There is a baseline for eligibility and one bank may have additional criteria which another bank may not have.