The Benefits of the UK Coronavirus Business Interruption Loan Scheme – CBILS

COVID-19 Shutters Businesses Around the Globe

Shortly after the World Health Organisation declared COVID-19 a global pandemic in March 2020, many countries, including the UK introduced lockdown measures to curb the spread of the coronavirus. These lockdowns have gravely impacted both local and international economies as. Rules vary by city and country, but in many parts of the world all but essential businesses, such as grocery stores and pharmacies had no choice but to shut their doors until their government says it’s safe to resume operations. 

Any non-essential business that can’t operate remotely have been in a difficult position for the last few months. Service-related businesses, such as restaurants and hair salons, have been particularly hard-hit as these jobs can’t be done remotely. Entertainment venues such as theatres, cinemas, as well as travel-related industries, are also shuttered. Non-essential retail businesses without a significant online presence, for example, a book store, or a local kitchen supply store may be struggling as well. 

Signs of Progress in the UK 

There are some initial signs of progress as the UK government allowed non-essential retail stores to re-open on June 15 barring each store can adopt and implement the government’s guidance about how to safely operate with social distancing measures. That said, this doesn’t include all businesses like restaurants, pubs and beauty salons which remain closed. 

Here is a list of non-essential stores that were allowed to re-open in the UK (with social distancing practices) as of June 15. This is exciting news if you run this type of business or if you’re a consumer who is eager for a long-awaited in-store shopping experience. 

  • food retailers
  • chemists
  • hardware/homeware stores
  • fashion shops
  • charity shops
  • betting shops and high street gambling arcades
  • tailors, dress fitters and fashion designers
  • car dealerships
  • auction houses
  • antique stores
  • retail art galleries
  • photography studios
  • gift shops and retail spaces in theatres, museums, libraries, heritage sites and tourism sites
  • mobile phone stores
  • indoor and outdoor markets
  • craft fairs
  • similar types of retail

How the UK is Supporting Employers and Employees During the Coronavirus Crisis

Some governments introduced programmes to support businesses of all sizes during this time. In particular, support is required for small companies who may not have a large cash surplus (eg, deep pockets) to weather the COVID-19 storm. 

In the UK, the government created an array of programmes for small to medium-size businesses (SMEs), larger companies as well as self-employed individuals. 

UK Grant Furlough Schemes: CJRS and Version 2.0 – Flexible Furlough 

The Coronavirus Job Retention Scheme (CJRS) is a furlough programme created in response to the COVID-19 pandemic. As of June 2020 nearly 8.7 million employees, roughly a quarter of the UK’s workforce has been put on furlough. 

The CJRS furlough programme is a government-funded grant scheme. The programme allows UK employers to designate employees who are no longer required or are unable to work due to coronavirus as “furloughed workers.” As a furloughed worker, you are put on a temporary leave rather than let go from your job. The employer applies for a grant via the Coronavirus Job Retention Scheme where they are then reimbursed for part of an employee’s regular monthly wages that are then paid to employees. The government is covering up to 80% of an employee’s regular monthly salary, capped at a maximum of £2,500 per month. As an employee, this means if you make £2,200 per month and you are put on furlough, you’ll receive £1,760 per month. If you make £3,300 per month and are put on furlough, you’ll receive £2,200 per month, which is the maximum allowable amount under the furlough programme. Your employer may choose to “top up” your salary to make up the difference between what the government is giving your employer and what you regularly make in a month, but this is not required. While furloughed, your employer cannot ask you to work. The furlough scheme is designed to help employers avoid making redundancies during COVID-19; however, employers are not obligated to put employees on furlough; it’s the decision of the employer. An employer can still make an employee redundant if there is no alternative solution 

The furlough programme was introduced in April 2020 and initially set to close at the end of June, but has recently been extended until October 2020. On June 12, the government also introduced a second phase to the scheme, the flexible furlough programme. In summary, flexible furlough means an employer can bring back employees on a part-time basis if need be and furlough them for the remaining hours they would typically be working as a full-time employee. Employers must pay employees for the part-time hours they work under the flexible furlough scheme. The flexible furlough programme also means some of the qualifications for furloughing employees will change as of July 1. 

The rollout of the flexible furlough scheme received some harsh initial criticism as many found the guidance to be confusing and difficult to understand. Hopefully, the government and chancellor Rishi Sunak will provide clarification in due course. 

The furlough programme has been a useful grant programme for employers who anticipate their business operations will return to pre-COVID levels later in the year and will, therefore, require their workforce to return. 

The Downstream Effect of Shutting Down Society 

While it’s exciting that non-essential businesses are starting to re-open and the government is providing support for employers in the form of furlough pay for employees, there’s no doubt that many businesses will still require additional support and funding to keep their operations afloat in the coming years. Three months of zero revenue, dated seasonal inventory that needs to be discounted and sold immediately along with constrained future growth projections due to social distancing requirements means many businesses will not generate enough cash flow to breakeven anytime soon. In April 2020 the UK economy shrunk by 20.4%, the most significant contraction on record for the nation. In comparison, during the Great Recession (also known as the Great Financial Crisis) of 2008, the UK’s Gross Domestic Product (GDP) only shrunk by 1% at it’s worst point. The 20% regression is hard to swallow, but not surprising given the lockdown across the entire nation. 

An easy way to picture the downstream effects of banning mass gatherings and all stores and restaurants is to think of a wedding for 200 people initially scheduled for April 2020. According to the Office of National Statistics, in April 2017 there were between 1,000 to over 2,000 weddings each Saturday in the UK. Gatherings of large groups such as a wedding were not allowed in April 2020. As a result, all the businesses that go contribute to producing a wedding weren’t able to make money. Here’s a high-level list of involved parties who are typically involved in providing a service for a wedding.  

  1. Wedding ceremony venue 
  2. Wedding reception venue 
  3. Hotel for the wedding party and guests 
  4. Caterer (both cooks and servers) 
  5. Baker 
  6. Car service
  7. Wedding photographer 
  8. Make-up artist 
  9. Hairdresser 
  10. Nail technician 
  11. Wedding and events planner 
  12. Florist
  13. Music (band and/or DJ)  
  14. The bars, nightclubs, and nightclubs that didn’t host a stag party and hen do 

The list goes on depending on the extravagance of the wedding. All of these businesses who are typically acclimated to maybe a stray cancellation here and there due to a called-off engagement or a runaway bride had to cancel their entire calendar indefinitely on March 23, 2020. This is a terrifying prospect, particularly when there’s still no clear guidance about when groups as large as 200 can gather again. The government furlough scheme has been useful for types of businesses that have been drastically hurt due to COVID-19; however, some companies may need additional capital to re-energise their operations once the lockdown has ended. 

Loan Programmes for UK Businesses

To help businesses that are experiencing decreased revenue and unexpected negative cash flow due to COVID-19, the UK government has introduced the Coronavirus Business Interruption Loan Scheme (CBILS) for SMEs. 

The programme allows businesses that have an annual turnover of no more than £45 million to apply for a government-backed loan through over 40 CBILS accredited lenders. Accredited lenders are retail banks, such as HSBC as well as alternative lenders who have been approved by the government to provide CBILS loans. Applicants may apply for loans between £50,0001 – £5 million. 

These loans can provide crucial working capital to an array of businesses, for example, the 14 businesses in the above wedding list, if they meet the lender’s borrower criteria. The CBILS programme offers debt in a variety of vehicles including term loans, overdrafts, invoice finance and asset finance. Also, the government is paying the interest for the first year along with any lender-levied fees. For loans under £250,000 there is no security requirement, and for loans over £250,000 your primary personal residence cannot be used to secure the loan. 

If your business has been adversely affected by COVID-19, it’s worth exploring if a loan could be the right tool to help your business move forward in the second half of 2020. 

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