The Coronavirus Business Interruption Loan Scheme was announced by the Chancellor at the budget on Wednesday 11th of March 2020.
The scheme is an extension of existing government backed scheme and is aimed at specifically helping businesses which are suffering cash flow issues as a result of the destruction to trade caused by coronavirus.
Borrowers could potentially apply to all 40 lenders involved in the scheme or make one enquiry to Promise Money and let the experts deal with everything start to finish.
The main benefits of the Coronavirus Business Interruption Loan are as follows:
- More Relaxed underwriting. The strict underwriting terms that commercial lenders would normally apply are relaxed so that more businesses will be granted the loan.
- Interest free. The government will pay the interest payments on the loan for the first 12 months so businesses can enjoy lower repayments.
- Payment holiday. Some lenders are also agreeing to offer a 12 month payment holiday so there are no capital or interest payments in the first 12 months.
- No security required. At lenders discretion they can grant loans up to £250,000 on an unsecured basis – possibly more if there is no security available.
- No Guarantee fees. These have been removed for small businesses and lenders will pay a fee to access the scheme instead.
- Loan types. The coronavirus business interruption loan scheme covers a number of business finance products, these include:
○ Loans arranged over a specific term.
○ Overdraft facilities
○ Invoice finance and factoring
○ Asset finance
Is my business eligible for a Coronavirus business interruption loan?
Firstly, the business must pass some
basic eligibility tests. Thereafter the eligibility will be dependent
on individual lenders criteria.
This is the point where life becomes
complicated because there are 40 different lenders each with
different criteria. The good news is that under this business
interruption loan scheme, commercial finance lenders are required to
soften their criteria which means they will accept more applications
that under their standard commercial lending offering.
However, for the business which is
applying, this adds an extra level of confusion as each lender will
have its own interpretation of the scheme and the concept of applying
to 40 lenders, each with different criteria and different
interpretations, can be very daunting.
That’s why it makes sense do use the
services of a commercial finance expert.
The basic eligibility criteria is as
- The business must be UK-based with
a turnover of no more than £45 million per annum.
- It must operate within specified
industrial sectors which are eligible for the loan. Click
this link to see if you are in an eligible sector.
- The business must confirm that it
has not received de minimus state aid of more than €200,000 (or
the UK equivalent) during the last three fiscal years.
- The final requirement is that the
business should be unable to meet normal lending requirements of the
lenders for a standard commercial loan or finance facility – but the
business would be considered viable in the longer term. This final
point is critical and in summary means the lenders will take a more
positive view of your business despite the application not being
strong now, if they believe the business will be sustainable in the
How does the coronavirus business interruption loan scheme work?
As mentioned above, each lender will
apply its own criteria. However, in addition to this, the lenders
must consider applications from businesses which are unable to meet
the lenders normal lending requirements for a standard commercial
loan but would otherwise be considered viable in the longer term.
This could mean, for example, that due
to the current trading conditions, your accounts and order books do
not demonstrate sufficient probability to meet normal lenders
acceptance criteria. However, with the aid of the loan you can
demonstrate to the lender that your business will improve and be
profitable in the longer term.
Don’t assume that only High Street
lenders are involved in the scheme. There are a wide variety of
lenders offering both commercial mortgages, secured loans and
unsecured loans including for businesses or business owners which may
have a little adverse credit in the background or don’t have
up-to-date trading accounts.
So even if your business is still in
its first year of trading there may be local lenders in your area
prepared to offer a loan based on your projections. It’s always
best to speak to one of the specialists at Promise to find out.
The reason lenders are able to take a
more positive approach is that any lenders acredited to the scheme
are provided by a government backed guarantee enabling them to claim
to 80% of the facility value in the event of the borrower defaulting.
It is important to note, however, that
the borrower/business still remains liable for repayment of the
amount under the terms of the loan agreement.
What type of business interruption loans are available?
Depending on the type of business you
run there are a variety of facilities that you may need to consider
to best suit your business requirements. Also, you might only require
the finance for a shorter period of time. Alternatively you may wish
to borrow an amount of money now and spread the repayments over a
A variety of different loan types are
available are you should talk to an expert about how your business
works and what might suit you best. One of the downsides of the
scheme is that there are a number of lenders involved but they don’t
all offer exactly the same type of facility therefore it’s
difficult to know which lender to approach and what might be suitable
Different loan types available include
commercial mortgages, unsecured loans, invoice finance, asset finance
Business interruption loans repaid over a set term
This can apply to unsecured loans or
large mortgages and simply mean that the repayments and payback
period are agreed at the outset.
A term loan is ideal for business which
can budget the amount it can afford each month in order to repay the
loan and then stretch the loan over suitable term to achieve that.
The payment terms vary depending on
whether the loan is secured or unsecured, The facility type and the
individual lender. Typically repayment periods on term loans and
asset finance are from three months to 10 years. For revolving credit
facility is an invoice invoice finance the term is normally up to 3
The businesses ability to afford the
monthly repayments is a big factor in deciding the term of the loan.
However, another consideration is the likelihood of being able to pay
the loan off as a lump sum. Therefore early settlement charges need
to be taken into consideration – some lenders charge them, some
Capital and repayment versus interest only
When taking out a loan it is normally
prudent to arrange the facility so that both the capital and the
interest is paid off over the course of the loan. This allows the
business to budget approximate payments over a certain period time in
the knowledge that the loan will be paid off at the end.
However, during times when cash flow is
not a strong, a business may not have the ability to repay both the
capital and repayment over the repayment term available and so an
interest only facility may be preferable.
With an interest only loan, no payments
are being made to reduce the balance so at the end of the term the
business will owe roughly the same amount it borrowed at the
beginning. This can keep the repayments far lower but gives the
business an issue to deal with later on so this must be factored into
the overall strategy.
It’s worth noting, that far fewer
lenders offer interest only facilities which can restrict choice and
drive interest rates up due to lack of competition.
Overdraft, cash flow loans and the best of the rest.
There are too many different types of
loans to raise cash for your business to mention them all here.
Suffice to say, whether it’s an overdraft, revolving credit, a loan
based on your credit card transactions, or indeed any other
facility,the team at Promise are aware of the various facilities
offered by different lenders and can assess whether your business can
afford a repayment loan or requires an interest only loan or
something a bit different. It always makes sense to weigh up the
various options by talking to one of our specialists.
Submit a simple enquiry online or talk to the commercial team here at Promise.