- Guestline & Reality Finance
How to apply for CBILS- The Coronavirus Business Interruption Loan Scheme
CBILS provides financial support to smaller businesses affected by COVID-19
Following on from our recent webinar on the subject, here we speak to Neil Whitear from Reality Finance to get the lowdown on what the loan scheme is all about and what hoteliers need to do.
Neil Whitear is a Senior Broker at Reality Finance Solutions, a partner of Guestline’s. Neil works closely with hotel owners to arrange finance for all their technology needs, whether it be a large international brand or a small independent hotel and has a wealth of experience working with the hospitality industry.
1. What is CBILS and who administers the scheme?
Answer from Neil Whitear (A): The scheme helps small and medium-sized businesses to access loans and other kinds of finance up to £5 million. The government guarantees 80% of the finance to the lender and pays interest and any fees for the first 12 months.
The program itself is backed by the British business bank who have gone out to the market and approached different Lenders to offer this scheme directly to their business customers.
Currently there are around 50 accredited lenders and this list is expected to grow as more lenders come onboard. Some of the more well-known lenders include the likes of Barclays, NatWest and Lloyd's. Additionally, there are a few specialist lenders that understand specifically how the function of the hospitality sector works - such as Close Brothers, Hitachi Capital and Secured Trust Bank.
The CBILS scheme is aimed at supporting both small and larger business, From small hotel chains to larger, more globally recognised brands such as Best Western and Hilton.
Many hotels are franchised owners and are still classed as an SME business. Unfortunately, they are losing revenue daily and cash flow is severely disrupted. As we all know in the hotel sector, cash flow is king and many do not have large cash reserves to survive these difficult times.
As a company ourselves, (Reality Finance), we are in the process of getting ourselves approved by various lenders on our panel to become an authorized CBILS partner with the aim of supporting the hospitality marketplace.
2. What are the key benefits of a CBILS loan?
A: There are many benefits to the CBILS scheme, namely:
- No upfront or early settlement fees
- Interest-free rates for the first 12 months (covered by the British Bank)
- Competitive borrowing rates
- Terms from 1 to 5 years
- Borrow between £50,001 and £250,000
3. If I'm in the hotel sector, what is the typical criteria for CBILS Lending?
A: In terms of eligibility the business must have a sound proposal for borrowing the money they need in order to survive these difficult times. The banks will not lend to any business that puts in an application because that will flood the market with unnecessary debt. Essentially, the business will need to meet the following criteria:
- To be UK based in its business activity with an annual turnover of no more than £45m
- Applications must be for business purposes only
- Businesses must generate more than 50% of its turnover from trading activity
- Businesses can borrow between £50k and £250k
- Finance terms are between 12 and 60 months
- For the applicant business not to have been in financial difficulty prior to the COVID-19 outbreak
In all cases, the business will be required to submit a proposal outlining the reason for the loan and what its intended uses are. The banks need to ensure that it is not an application for a pure cash raising exercise for a business that doesn’t really need it or has the cash reserves to survive. There could be many businesses out that there that could potentially look to take advantage of this scheme and that is what the application process is there for. Businesses will need to prove that it has been impacted adversely by the pandemic and that is the sole purpose for applying for the funds.
4. What about Directors’ / Personal Guarantees?
A: A guarantee is when the Director of the business puts forward their personal assets or property as collateral should they default on the Loan.
The scheme does not require any directors guarantees on loans up to £250,000, any lend above this figure may require the directors to guarantee.
The lenders have been instructed that the CBILS loans are not to be secured against any Directors’ primary residents but may look to guarantee against other assets such as second properties. They will also cap it at 20% of the outstanding balance.
As part of the application, lenders will also request bank statements and cash flow forecasts which is generally part of the standard underwriting process.
5. What are the challenges for businesses applying for CBILS?
A: Applications are made directly to a panel of approximately 50 accredited lenders using their standard underwriting criteria. This is where things can be tricky for the business.
Although the government is guaranteeing all loans for the first 12 months, the underwriting criteria is not standardized across the board. You could approach one lender and get a decline, or another who may accept the application. This makes it very difficult for a business to know which lender to turn to.
6. What should hotels be thinking about and considering before they apply for a CBILS loan?
A: Every business has different needs and requirements but a key thing to consider is, does my business need the loan, is the purpose critical or not to the survival through the Covid-19 outbreak?
It’s important to remember, despite the first 12 months of interest being subsidised by the government the business is still taking on debt that needs to be repaid. Taking on additional debt should be the last resort and the business should consider other schemes available first – such as the staff Furlough Scheme or postponing their Corporation and VAT liabilities along with other cost-cutting exercises.
When exploring CBILS, the business should take the time to understand the repayment terms and what happens after the initial 12-month period. Will they be able to afford the repayments with interest included? Do the Cashflow forecasts reflect this?
However, if the business is left with no choice, they will need to start pulling together a Proposal for the Loan with a solid case specific to the Covid-19 pandemic.
The business would also need to approach the right lender – as discussed this can be very confusing to the business due to the different criteria’s out there. This is where speaking to an Independent Finance Broker can help, so we can point you in the right direction.
7. Assuming a business wants to proceed with a CBILS loan, what can they do to make sure their application is as strong as possible?
A: When applying, the business should ensure they include as much supporting information as possible - including the business’s future plans and how it is planning to grow revenue.
The business should only apply for the funds they actually need. What does the business really need to survive before cashflow returns to a state where additional funds are not needed? Hotels will need to tell the lender:
- The amount you’d like to borrow
- What the money is for
- How long you’d like to pay it back
The lender will use a team of Underwriters to process the application. They will look at:
- Management accounts and historic accounts that will indicate how the business has been performing before Covid-19 impacted the industry.
- Honest and reasonable cash flow forecasts.
- Your business plan.
- Business expenses for the next 6-12 months.
- Experience in the industry e.g. if the Director has experience in the hotel industry then they should put that forward as a positive.
- Tactical plans to meet the cash flow forecasts – marketing plans or customer incentives.
- Details of assets.
The documents required will vary from lender to lender and depend on how much you’re asking for. The lender will then decide whether to offer you a loan or another type of finance and you’ll be responsible for repaying 100% of the amount borrowed.
8. And if hotels need any further help or advice, where can they go?
A: Hotels can check out the Government’s webpage here for more information or they could speak to a finance broker, like ourselves, Reality Finance, who can provide bespoke advice on the business plan and application.
To watch the full webinar on 'Adapting your business to survive Covid-19', please click here.
Hoteliers Coronavirus Hub
For more information on Covid-19, please visit our Hub: