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How to create a strong CBILS application

We asked Chris Lowe, partner and co-head of advisory at Ernst & Young, to answer the questions many UK SMEs may have around the process of applying for a CBILS loan.

Chris also tells us more about what CBILS is and what a business can do to increase the chances of its application to the scheme being successful.

What is CBILS?

The Coronavirus Business Interruption Loan Scheme (CBILS) is part of a wider government package to provide financial support for smaller businesses across the UK that are losing revenue and facing working capital challenges as a result of COVID-19 (coronavirus).

With over 50 accredited lenders, the scheme enables these lenders to provide SMEs with facilities of up to £5 million in the form of term loans, overdrafts, invoice finance and asset finance.

Business Finance Guide: First of all, tell us a bit about yourself and your role at Ernst & Young

Chris Lowe: I’m a partner and co-head of advisory at Ernst & Young. In normal times, I tend to work with private and mid-market companies – those generally owned by private equity but in the mid-market space – and private corporates across the UK. I advise them on refinancing, acquisition financing, securing growth capital and helping our clients (borrowers) approach the lending markets with the strongest set of credit metrics – not equity metrics.

How can businesses give themselves the best chance of a successful CBILS application?

The key here is to make your credit story as easy as possible for the lenders to work through. It’s about getting heard. We regularly tell people not to bother going on a website and posting an application there. Rather, think the application through, make sure it’s robust, get a connection to the bank and talk to someone, before you go through the process of completing numerous forms.

Your request to lenders must be clear and should cover:

  • the amount of funding you need
  • what type of financing product you’re looking for (e.g. overdraft, revolving cash facility, term loan etc.)
  • your ability to service additional interest and ultimately repay the money
  • any amendments required to existing facilities
  • what security you have available

But before all of this, ask yourself these six questions

What documentation do businesses need to have to hand before applying?

You will need to provide certain documents when you apply for a CBILS-backed facility. These requirements vary between lenders, but will most likely include management accounts – typically a profit and loss account, balance sheet, cash flow statement and a short report.

Specifically, in relation to a CBILS application, a lender is likely to ask for the following:

  • Cash flow forecast (3-month and 12-month view)
  • Balance sheet, including details of assets
  • Profit and loss account, including EBITDA
  • Previous year’s historic accounts
  • Business plan for the financial year and beyond (to demonstrate your ability to repay the loan)
  • COVID-19 critical impact statement

What’s the maximum amount businesses can borrow?

CBILS provides loans of up to £5 million, though there are certain limits in place that mean the amount can’t exceed two times the company’s annual wage bill, or 25% of its turnover, for example. Different lenders vary in the way they set these limits.

We encourage companies to carefully consider what collateral they have as security, as the scheme only allows unsecured loans of up to £250,000.

Lenders aren’t permitted to request personal guarantees for amounts below £250,000. For loans of over £250,000, personal guarantees are limited to a maximum of 20% of the outstanding balance of the CBILS facility after the proceeds of business assets have been applied.

If a business’ CBILS application is turned down, can it re-apply?

Absolutely. CBILS has accredited over 50 lenders now, so there’s nothing to stop a business applying again. You can actually take out more than one loan, you just can’t take more than the aggregate.

My advice to businesses that are researching lenders is to choose a number of suitable ones. That way, there are back-ups if the first lender rejects the application. There is a list of CBILS accredited lenders.

How do businesses go about choosing the right lender for them?

All businesses have an existing relationship with their bank so that’s where I would advise starting. The reason for this is that most businesses, even if they don’t have core debt facilities, may have overdraft facilities. They may have given security over certain assets or shares or have invoice discounting, for which the lender or working capital provider has a fixed charge (full control over the asset the charge applies to).

With CBILS, it has to sit alongside any existing debt, so you won’t be able to get a CBILS loan unless the existing provider will agree to it.

Other than that, I would recommend going to the emerging banks rather than ‘the big four’. The emerging banks are looking to grow so you may get heard more quickly.

How long does the application process take, and when will businesses actually receive the loan?

If you do it properly, you should spend a week preparing before you approach the lenders. You then need to allow them to reflect. They will have some questions for you, they have to “go to credit” (i.e. check all of your documentation and make sure you are eligible) and they need to document the loan, so you’re looking at a minimum of four weeks.

Of course, this will vary from lender to lender, so it’s best to check with them in your initial conversation.

Once successful with an application, can businesses then apply for a top-up if needed?

We would generally advise only applying once, with a clear forecast (as much as you can forecast during these times).

We typically recommend that you build three cases of recovery – upside, mid and downside – and generally size liquidity based on the mid case and covenants of a downside case. Put simply, you don’t want to go back to a lender six months down the line and say “Hey, I’ve got another problem”.

Finally, what is the most common error you see people make when creating an application?

The most common issue we see is clients rushing and doing the application themselves, then getting rejected. Yes, you have to pay an advisor, but it’s much better to get it right the first time and save yourself the hassle.

Want to make sure you have everything you need to begin your CBILS application? View the ICAEW’s article “creating a strong CBILS application” or download the British Business Bank’s CBILS checklist.

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