Coronavirus outbreak has not only impacted the health of people around the world, but it has also had an impact on economies including the British economy. GDP fell by 5.8% in March and then by 20.4% in April which is the largest monthly fall since 1997, a year when monthly GDP started being recorded. The lockdown and social distancing rules forced many companies and factories to close and consumer demand has plummeted as a result. PwC estimates the UK  GDP growth in 2020 to be between -8% to -12%. Foodservice, hotels, retail and transport sectors are believed to be under the worst hit. These sectors are expected to shrink by 15% to 25% in 2020. It has been estimated that over 612,000 UK workers have lost their jobs as more companies either reduce their amount of operations or completely shut down.

To lessen the damage to the economy, the UK government has introduced policies that can lessen the impact of COVID-19. CBILS and BBLS are examples of those policies. But what are they and how do they differ?

CBILS Overview

CBILS was introduced on 23 March 2020 and is set out to help small and medium-sized businesses (SMEs) to get loans ranging from £50,001 to £5 million in size. The fact that the first 12 months are free and that the government guarantees 80% of the finance to the lender is what makes this loan different from the typical loans. However, the borrower still remains 100% responsible for the loan to be repaid. The business can apply to the scheme until September 2020.

To be eligible for the scheme the company must meet certain CBILS criteria: have an annual turnover of up to £45 million and its key operations must be based in the UK. The business must also be able to show that it has been severely affected by the pandemic. To borrow more than £30,000 business must show that it was not classed as a business in difficulty on 31 December 2019. Not all sectors are eligible for the scheme:

• Public-sector bodies
• State-funded primary and secondary schools
• Banks, insurers and reinsurers

Businesses listed above are not eligible for the CBILS.

To apply for a loan, businesses must contact the lender directly. There are currently over 50 accredited lenders and they are listed on the British Business Banks website. Supporting documents will depend on the amount of the loan being asked and also can vary from lender to lender. The business will also negotiate the length of the loan with a lender. It is expected to be up to 3 years fro overdrafts and invoice finance facilities and up to 6 years for loans and asset finance facilities.

Based on all the information provided the lender makes a decision whether to give the loan or not. However, if the lender turns the company down, the can apply for the loan to other accredited lenders – there is no limit on applications.

BBLS Overview

BBLS was introduced on 27 April 2020 so that smaller businesses will be able to access finance more quickly in these turbulent times. The scheme duration is until November 2020.

The size of the loan SME can borrow is between £2,000 and up to 25% of the business’s turnover. But the maximum loan is £50,000. Similar to CBILS the government guarantees 100% of the loan and the first 12 months are free. After one year there will be an annual interest rate of 2.5% and the loan has a set length of 6 years.

To be eligible for BBLS business must be based in the UK and must have been established before 1 March 2020. Again similarly to CBILS, a business must show that coronavirus has had an effect on it. Businesses from sectors that cannot apply for CBILS also are not eligible for BBLS.

There are currently 11 accredited lenders participating in the scheme and same as CBILS businesses need to approach them directly through the website. The lender will then ask the borrower to fill in an online application form and self-declare that the company is eligible for the scheme. If one lender turns the business down the business can then apply to another lender. The borrower remains 100% responsible for repaying the loan.

Which One is Better?

As can be seen from the overviews of each loan scheme there are a lot of similarities. The eligibility criteria and application process are very similar and businesses don’t have to pay interest in the first 12 months in both schemes. Also, businesses are allowed to apply to each scheme many times through different lenders if they have been turned down.

However, there are also clear differences between the two loan schemes. One such clear distinction is the amount of finance provided. The maximum amount that can be provided by the BBLS is £50,000 (up to 25% of annual turnover) while the maximum value of CBILS can be as high as £5m. The minimum lending amount is £2,000 and £50,001 respectively. Also while BBLS only provides term loans, CBILS also provides other types of finance as well: overdrafts, invoice finance and asset finance.

From this information, it may seem that CBILS is clearly better than BBLS but BBLS has some advantages over CBILS. In BBLS government gives a full 100% guarantee to the lender while it is 80% guarantee in CBILS. The interest rate in BBLS is 2.5% per annum no matter what lender is used whereas in CBILS the lender decides the interest rate based on each individual case and CBILS interest rates are usually is higher than 2.5%. For example HSBC chargers 3.49% for loans up to 3 years and 3.99% for loans over 3 years. They are also no restrictions in refinancing.

Overall it is hard to say which loan scheme is clearly better as it very much depends on the business wanting to borrow the funds. Businesses should review their cash flow forecasts and other documents to make a decision on what type of financing they need and what amount they are looking for. Based on that then they should make a decision on what type of loan scheme they want to go for, keeping the things mentioned in this article in mind.