Further changes to CBILS have opened up the initiative to more potential borrowers. Here, our partner Lance Mysyrowicz explains how SMEs can benefit – and what it means for the UK on the global stage

Good news may seem to be in short supply in 2020, but there is light at the end of the tunnel for UK SMEs. After extending the Coronavirus Business Interruption Loan Scheme (CBILS), giving companies until 31 March 2021 to apply for a loan of up to £5m, the government has now relaxed the requirements for firms that need to pass the “undertaking in difficulty” test.

This test, which was included in the CBILS criteria to ensure that any companies receiving funding would be able to repay their loans, required businesses to have lost less than half of their subscribed share capital as of 31 December 2019. It has now been adjusted to offer greater flexibility to firms that may benefit from CBILS loans.

The assessment will be made on the date a business applies for a loan (rather than looking at its viability at the end of last year), so companies that were “undertakings in difficulty” in December 2019 but no longer fit this definition are newly eligible for the scheme. This change also applies to the Coronavirus Large Business Interruption Loan Scheme (CLBILS); the British Business Bank gives the full definition of an “undertaking in difficulty” here.

Private equity-owned firms are set to benefit

“This change is particularly pertinent to businesses owned by private equity firms,” says Kim Martin, London-based principal at BOOST&Co. “If one of these businesses was classed as an ‘undertaking in difficulty’ as of 31 December 2019 – because, for example, it had a lot of loan notes or debt – it can now convert those loan notes or debt into equity. It will no longer be classed as an ‘undertaking in difficulty’, and the test will not be applied until the point at which it applies for CBILS, so that makes it eligible for a loan.”

This adjustment relies on private equity firms’ willingness to convert these instruments, but it shows that the government has listened to feedback from the industry, Martin says, with the result that the scheme has been “opened up to a broader base of companies that may benefit from a CBILS loan”.

How earlier changes helped innovative SMEs

The most recent changes to the scheme follow the announcement in July that businesses with fewer than 50 employees and turnover of less than £9m did not need to pass the “undertaking in difficulty” test. Most innovative SMEs invest in future growth, which results in losses early in their life. This means that the balance sheets of these businesses could portray them as “undertakings in difficulty”, thus deeming them ineligible for CBILS, even if they are viable, fast-growing firms.

This scenario affected many high-growth SMEs, despite the fact that they need funding just as much as other businesses do, so their exemption from the test enabled them to access the same funding as their more established peers. Unlocking a large amount of funding for innovative firms when they need it most will help them to survive the crisis and to emerge stronger on the other side.

The change in guidelines is significant for the whole innovation ecosystem, too. Better access to funding for SMEs affects the UK’s position on the world stage: the continual evolution of CBILS and the variety of lenders it has attracted have cemented the scheme as one of the most comprehensive and accessible SME support programmes in the world. This commitment to supporting growth SMEs will help to ensure that the UK remains at the forefront of start-up growth and innovation.

I have an innovative SME – what do I do next?

The latest change to the “undertaking in difficulty” test does not grant automatic access to CBILS; you will still need to prove that your business has been adversely affected by Covid-19 and to convince your lender that you are credit-worthy. More than 40 lenders have been accredited to provide funding under CBILS, but not all of these will want to lend to high-growth SMEs, which may not match the lender’s ideal risk profile or previous lending experience.

Growth Lending – a group comprising BOOST&Co and fellow lenders GapCap and KX Media Capital – was founded to support UK SMEs where traditional lenders could not. It welcomes applications from innovative businesses and moreover, actively wants to lend to you.

With more than 15 years’ experience of working with fast-growing firms, Growth Lending has both the capital and the desire to support the next generation of innovators in the UK. The group is accredited to provide CBILS term loans, invoice financing and revolving credit facilities, drawing on the expertise of teams in each of these areas to offer tailored, individual solutions to a wide range of innovative SMEs.


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