The Coronavirus Business Interruption Loan Scheme (CBILS) Update

This week seven of the largest lenders to UK SMEs have written an open letter stating a key change to the Coronavirus Business Interruption Loan Scheme (CBILS) application process:

“Following the changes to the scheme announced today lenders will only ask businesses for information and data they might reasonably be able to provide at speed and we will not require the provision of forward-looking financial information or business plans from businesses applying for CBILS-backed lending, relying instead on our own information to assess credit and business viability.

This means that business owners applying to these seven banks (Barclays Bank UK, Danske Bank, HSBC, Lloyds Bank, NatWest, Santander, and Virgin Money) no longer need to prepare cash flow and business plan when applying to CBILS. This dramatically reduces the efforts required to put an application together.

Despite it now being a simpler process to apply for CBILS financing, a business owner should consider if taking on debt at this time is the right thing to do.  To help make this decision preparing a forecast may actually be a very helpful tool to see how the cash position changes under different assumptions and scenarios.

This announcement appears to have arisen following a Prudential Regulatory Authority (PRA) announcement at the start of this week which requested lenders to consider the following in respect to CBILS:

“The performance of the business prior to the Covid-19 outbreak; a view of how the loan will be repaid in due course, relying on judgement in the absence of financial forecast information; and the general prospects for the sector in which the business operates once the effects of the pandemic have receded.”

R&D Tax Credits and CBILS

 R&D Tax Credits and CBILS are classed as state aid.  Under state aid rules a business is only able to receive one form of state aid for a project.

HMRC have issued the following wording on this:

Are new Government support schemes introduced in response to the Coronavirus, such as CBILs, State aids or subsidies? Will they affect a company’s ability to make a claim under the SME scheme?

 The Government has notified CBILS as State aid under the European Commission’s new Temporary Framework for COVID-19. The measure is a fully notified aid, so the restriction on the receipt of other State aid (s1138(1)(a) CTA 2009) potentially applies, if the CBILS relates specifically to the company’s R&D expenditure [on a project] rather than being intended more generally to support the company. This will depend on the facts. We will be monitoring the application of this rule and welcome feedback.

This appears to state that if a CBIL is received by a business to help finance a specific project then that project is not eligible for future R&D tax credits (or at least SME R&D tax credits). It may still be eligible for RDEC.

However, if the CBIL is used for general business purposes (which seems more likely in most cases) then a project receiving R&D tax credits should still be eligible to receive them in the future.

It should be noted that HMRC has said they will monitoring claims as they come which shows the answer isn’t black and white and further guidance is likely to be produced in due course.

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