Understanding Coronavirus Business Interruption Loan Scheme
On 15 January 2020, the Supreme Court decreed that COVID-19 fell under an “occurrence of a Notifiable Disease within a radius of 25 miles” of a business’ premises. So if your business has been affected by COVID-19, you may be eligible for financial support.
What to do next
Check your insurance policy to establish that it, a) is up to date and, b) includes a business interruption clause. If the answer is affirmative on both counts, you can then start to quantify what, if any, losses your business has sustained as a result of the current pandemic.
What constitutes interruption?
The onus is on you to prove that your business has suffered as a result of COVID-19 and that it hasn’t merely been hindered. The most obvious example would be a bricks-and-mortar-reliant company having to close its doors because of the outbreak. And a reduction in footfall to your business due to social-distancing rules would be another.
Quantifying losses
A verifiable downward trend needs to be established. That is to say, has your business’ turnover and gross profits been adversely affected by COVID-19, rather than by factors unconnected with the virus?
The Coronavirus Business Loan Scheme
On 12 March 2020, in response to COVID-19, the government introduced financial support for UK-wide small and medium-sized enterprises whose cash flow has been adversely affected by the outbreak. This takes the form of the Coronavirus Business Interruption Loan Scheme (CBILS), which has built upon the existing Enterprise Finance Guarantee (EFG). As with the EFG, the CBILS doesn’t offer free money. Rather, it provides a loan which will need to be paid back.
How does CBILS work?
Participating lenders (of which there are more than 40) can provide between £1,000 and £1,000,000 to COVID-19-affected businesses. The government has agreed to guarantee up to 80% of each individual loan (to the lender, not the borrower) while waiving the usual 2% annual charge (which is typically passed on from the lender to the borrower).
CBILS is not risk-free, however. You will need to pledge your personal assets – the one exception being the family home (where applicable).
Ultimately, the government is not willing to take any risks with unsustainable businesses. So if you believe your enterprise to be viable, and eligible for the loan, you’ll need to provide the necessary security.
Borrowing money is as risky now as it’s ever been. Only if you’re certain that you’ll be able to repay this government-sanctioned loan should you decide to take up the offer. If you’re unable to do so, the government (on behalf of the lender) will recover losses via your business first and your personal assets second.
Stay tuned
The terms of the Coronavirus Business Interruption Loan Scheme have been tweaked at least once already and may be done so again. Please check the JR Accounts website for further updates. And please don’t hesitate to contact our Ilford accountants regarding any of our accountancy services that can help your business get through this uncertain period.
