The government is doing all it can to help businesses affected by the coronavirus crisis including new loan initiatives.
The Coronavirus Business Interruption Loan Scheme (CBILS) and Coronavirus Large Business Interruption Loan Scheme (CLBILS) give lenders accredited by the government-owned British Business Bank the ability to offer major funding to distressed companies.
This can come in the form of loans, asset finance, invoice finance and revolving credit facilities all of which could prove very useful to car dealers right now. The scheme opened on March 23, with an expanded version announced on April 3, and are available to access now.
How is the government backing them?
They are backed by the Treasury and gives lenders a guarantee against the balance of 80 per cent of the loan. You will be liable for all of the debt you take out, so think carefully before taking the leap, but it’s an option if there are no others available.
How much cash is available?
As of April 3, up to £25m for firms with an annual turnover of £45m to £500m, and up to £5m for those whose turnover is up to £45m. The eligibility criteria for loans for businesses under the £45m limit was also eased at the same time, meaning more small businesses can benefit.
The good news is the government will foot the cost of the first 12 months of interest payments plus any lender-levied fees, which will be crucial during this critical time when dealerships are closed. They are available from up to 40 banks, and as of April 3 lenders are also banned from requesting personal guarantees on loans under £250,000.
The government adds that for loans of more than £250,000, personal guarantees will be limited to 20 per cent of any amount outstanding on the Coronavirus Business Interruption Loan Scheme lending after any other recoveries from business assets.
In another important move announced by chancellor Rishi Sunak the same day, all viable small businesses that are affected by Covid-19, ie, not just those that are unable to secure regular commercial financing, are now eligible for finance should they need it to keep operating during these difficult times.
Is my car dealership eligible for one?
There are a few eligibility criteria that you’ll need to meet which include the following – and we’re aware some car dealerships will fall outside of this:
- Must be UK based
- Cannot have a turnover of more than £45m
- Must be able to confirm you have not received de minimis state aid beyond €200,000 equivalent over the current and previous fiscal years
- Must have a sound borrowing proposal but insufficient security to meet the lender’s requirement
How do you apply?
Approach one of the 40-plus lenders. They can be found on the government website here. You can search by type of finance or region. The lenders have been delegated the power to decide on your eligibility under the scheme. And remember, they can no longer demand a personal guarantee for a loan of under £25,000.
What do car dealers need to consider before borrowing?
Like any type of borrowing, you should only go into it after you have seriously considered your ability to repay the debt. These loans may be backed by the government and are designed to avoid hardship for dealers who have been hit by poor trading conditions from the lockdown – but they are still loans.
- You will be liable for the whole debt – notwithstanding the government guarantee provided to the lender – you just won’t have to pay for the first 12 months of interest or any lender-levied fees
- Your cashflow will have to project for repaying the loan
- There may be restrictions placed on the borrowing – agreements or commitments you will have to agree to and maybe even changes to your articles of association
- There could be covenants you may be asked to provide and you need to consider whether you can meet them
Lawyers Moore Blatch say in an online article that dealers should also ask themselves:
‘Is the business solvent – do its assets exceed its liabilities, and/or possibly subject to receiving the facility can it pay its debts as they fall due; and with the facility is there a genuine prospect of the business continuing to trade?’
Although many dealers may see these loans as a solution to all ills, they are really more of a way of alleviating short-term cashflow problems caused by the coronavirus crisis. If borrowing now means you can pay bills that are urgent and then catch up when businesses restart then great, but think carefully about borrowing.
What sort of security is needed from car dealership owners to back these loans?
The British Business Bank says that for loans and asset finance facilities up to six years, and for overdrafts and invoice finance facilities up to three years, the following security criteria will be put in place:
- If a lender can offer finance on normal commercial terms without making use of the scheme, it will do so
- The lender can choose to use the scheme for unsecured lending for facilities of £250,000 and under
- The Big Four banks have agreed that they will not take personal guarantees as security for lending below £250,000
- For facilities above £250,000, it must establish that the borrower is unable to provide security before it uses CBILS.
- Primary residential property cannot be taken as security under the scheme
It adds that there are no guarantee fees for SMEs. Lenders actually pay a fee to access the scheme.
For further information, visit the British Business Bank here.