Coronavirus Business Interruption Loan Scheme extended to struggling small businesses

The government’s Coronavirus Business Interruption Loan Scheme (CBILS) has been hugely popular amongst UK small businesses, and has kept many SMEs going through the coronavirus crisis.

However, EU rules on state aid meant struggling businesses – i.e. those with significant losses or debts – were barred from the loan scheme, meaning the pandemic exacerbated their financial distress.

Now though, the EU has loosened its rules on state aid, and the UK government has opened up the scheme to struggling businesses – meaning they can finally apply for some much needed financial support.

This article will explain exactly what has changed, and the new eligibility criteria.

How has the Coronavirus Business Interruption Loan Scheme changed?

The reason this has changed is because, while the UK is in its Brexit transition period, the country is still bound by EU laws on state aid.

These state aid laws are rather complex, but the essential idea is to ensure that EU governments cannot provide support to particular industries or companies that would give them an unfair advantage over competitors in other EU countries.

However, recognising the huge economic challenges posed by the pandemic, the EU has temporarily changed its rules to allow struggling small businesses to be accepted for government-backed loans.

This means that the government can now open the coronavirus business interruption loan scheme up to businesses that fit these criteria. It is now writing to banks and other lenders to ensure that they lend to these small businesses.

Who is now eligible for a Coronavirus Business Interruption Loan?

To be eligible for a coronavirus business interruption loan, small businesses must tick the following boxes:

✅ Your business must be based in the UK

✅ Your business must have an annual turnover of under £45m

✅ Your business must have been adversely impacted by the coronavirus

Previously, any “business in difficulty” (i.e. with significant losses or debts) was also excluded, but now these rules have been refined.

If your business is struggling, to be eligible for a business interruption loan, your business must:

✅ Have a turnover of less than £9m

✅ Have fewer than 50 employees

This means that small businesses which were previously turned down for a business interruption loan may now be eligible.

How could this change affect the UK economy?

In response, UK Finance (which represents most of the lenders in the scheme) hailed the change, with Managing Director of Commercial Finance Stephen Pegge noting that lenders would now be able to help more “viable businesses”:

“This change will make a real difference for those smaller, viable businesses who had previously struggled to secure loans under the schemes, because they were deemed to be ‘undertakings in difficulty’.

“Lenders will now be able to help more viable businesses secure the finance they need, and will continue to engage with their commercial customers and assess any new lending applications against the revised rules.”

However, quoted in The Guardian, Jagit Chadha, the director of the National Institute of Economic & Social Research (NIESR) thinktank, warned that funding struggling businesses that cannot invest could harm the UK’s economic growth, and increase the cost of the UK’s looming SME debt crisis:

“While providing a simpler approvals process is helpful, and providing support to businesses that were in difficulty in December 2019 may support some in their recovery during the pandemic, there is a danger that older businesses that should otherwise go out of business may continue to trade with even higher levels of debt, which may hold back future investment and job creation.

“It would be just as important, perhaps even more so, to consider boosting lending for new businesses and startups.”

Key points for your small business

• A change in EU rules means that struggling businesses can now access the Coronavirus Business Interruption Loan Scheme (CBILS)
• Businesses must still fulfil the three basic requirements – they must be based in the UK, have a turnover under £45m, and have been negatively impacted by the coronavirus
• To be accepted, struggling businesses must have a turnover of less than £9m and fewer than 50 employees
• Small businesses that were previously turned down for a business interruption loan may now be eligible for the scheme
• Some are concerned that extending funding to struggling businesses could hinder the UK’s economic recovery