Coronavirus: The govt's loan scheme for businesses explained

If the lender can offer you a loan on normal commercial terms outside of the scheme it will. 

Almost every type of business is eligible to receive support through the scheme as long as the business is operated through a business account.

This has been source of some consternation for small businesses who complain that as a result they are no longer entitled to the favourable repayment terms which the government have announced.

There has also been some criticism that banks have steered customers and applicants to take out their loans outside of the scheme’s bounds, allowing the banks to charge interest rates - sometimes upwards of 20 per cent. 

Eligibility

All UK-based businesses with an annual turnover of less than £45 million and who generate 50 per cent of such turnover through trading are eligible to apply for the scheme, as long as the firm: 

• Has a borrowing proposal that if not for the coronavirus pandemic would be considered viable for the lender, and;
• Is using the funds to trade out of any short- or medium-term difficulty.

The only other eligibility criterion is the requirement to operate in an eligible industrial sector, meaning almost any sector other than: banks, building societies, insurers, the public sector (including state-funded primary and secondary schools); employer, professional, religious or political membership organisations or trade unions. 

Almost every type of business is eligible to receive support through the scheme as long as the business is operated through a business account.

This means that the CBILS is available to sole traders, limited partnerships, limited liability partnerships, freelancers or any other legal entity carrying out a business activity in the UK.

There may be scope within the CBILS for start-ups to receive support; but, if the business is in the first two years of trading, the British Business Bank’s Start-Up Loans programme (loans of £500 to £25,000 at 6 per cent p.a. interest) may be more suitable.

Pay back

The government has made it clear that for businesses paying back their loans the firms will not be subject to either interest payments or wider fees in the first 12 months.

Some lenders who are a part of the scheme were criticised for asking founders for personal guarantees on their loans.

Mr Sunak, in his original announcement, pledged six months of this protection, which was later extended to combat further difficulties and to encourage more businesses who need to take up the loans. 

Individual payment terms will vary from bank to bank and policy to policy.