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Covid-19 loan support
New rules came into play on 1 December 2020 which allow HMRC to leapfrog other creditors in the order of priority of payment that applies when a business goes bust. This broadly returns the position to the situation before the preferential status of these claims were abolished in 2003 to promote enterprise.
Now that the CBILs application deadline has passed, I want to share with you details of the replacement for CBILs, namely the Recovery Loan Scheme or RLS which is currently due to be in place until 31 December 2021. The RLS has many similarities with CBILs in that it is intended to support businesses that have suffered a negative impact due to COVID-19 in the form of unsecured lending. However, the key difference is that, unlike CBILs which offered an attractive 12 month repayment holiday with the first years’ interest and fees paid by the government, there is no such repayment holiday or interest / fee benefit under RLS. Despite this, the RLS is still likely to be more attractive than ‘normal’ commercial lending which would almost certainly require a personal guarantee. Other than that, key terms and conditions are as follows:
- 80% government guarantee - No personal guarantees for amounts < £250k - Business must be negatively impacted by COVID-19 - Up to 6 year term for term loans and asset finance - Up to 3 year term for invoice financing and revolving credit facilities Given the huge amount of lending under CBILs and BBL, many businesses will have adequately addressed their funding needs. However, as things start to unlock and working capital requirements increase and catch-up payments are made on rent / VAT etc, this could easily present further funding challenges. Equally, I have had a number of conversations with businesses that have drawn down a BBL but which require additional funding. Securing additional funding under CBILs would have required the BBL to be repaid. However, this is not the case under the RLS so it could be a useful unsecured top-up for businesses that have a BBL they don’t want to repay but which require additional funding.
If this is something that you would like to find out more about, please contact me, or your usual Albert Goodman contact.
Neil Hutchings
Director of Corporate Finance
