Coronavirus loan scheme: What farmers need to know

Farmers who have seen their income hit by coronavirus are being urged by the government to apply for the Coronavirus Business Interruption Loan Scheme (CBILS).

This is the primary help scheme for businesses that need access to additional cash because their income has been hit by the disease outbreak.

The dairy sector has called for grant aid, but Defra said last week there is not yet accurate and credible supportive data to justify a bespoke grant funding scheme.

See also: Coronavirus: Check eligibility for grants and rate relief

However, union leaders have expressed concern that struggling businesses will not meet eligibility criteria.

These include a requirement that loans can only be offered to those that would have qualified for one had it not been for the coronavirus crisis.

Martyn Shakespear, national head of banking and finance at accountancy firm Baldwins, said he was aware of only a small number of farmers applying for the CBILS so far.

“If a business was struggling prior [to coronavirus] then CBILS is not really for them,” he said.

For those that are eligible, it can be a useful product. With the government paying the interest for the first 12 months, borrowers may have nothing to pay for a year if they are able to opt for a capital repayment holiday, he said.

Businesses that think they may need it should consider applying as soon as possible, he said, as if they draw down the cash but end up not using it, repayment will cost them nothing, provided they opt for a variable-rate loan.

Rule change

A rule change that banned banks from asking for personal guarantees for loans under £250,000, announced by the chancellor on 2 April, has also proved popular with directors of limited companies, Mr Shakespear said.

This means they will not have to put up personal assets such as their house as collateral against the loan.

But he warned that despite the government’s 80% guarantee, the borrower remained responsible for 100% of the loan and in the case of any default, the lender will turn to the borrower and their business assets first before claiming from the government.

Also, while lenders under this scheme are prohibited from asking company directors for personal guarantees on loans of more than £250,000, they will all require business assets as security for these loans, regardless of the amount and whether they are sole traders, in a partnership or a company director.

Documentation required

Martyn Dobinson, partner with accountancy firm Saffery Champness, said that the information required to access a loan would vary depending on its size and how much prior experience the lender has of the business.

For any application, he recommends the following:

  • A 12 month summary of business performance prior to the onset of coronavirus
  • Statutory accounts for the last completed financial year
  • Information on how the business has been impacted by coronavirus
  • Monthly management accounts for the last completed financial year and current year-to-date, including
    • Profit and loss
    • Balance sheet
    • Cash flow statements
  • A summary of actions taken or considered to mitigate the impact of coronavirus including the extent to which other funding options or government support have been considered
  • Schedules of existing debt, hire purchase or other third-party finance commitments
  • A summary of the amount tha tthe business needs to borrow, how such funds would be utilised and the repayment period
  • Forecasts of estimated total cash requirement for the next 12 months including monthly profit and loss, balance sheet and cashflow statements consistent with historical accounts
  • A longer-term forecast for the next two or three years including adjustable assumptions driving the forecast financial position, particularly when linked to the funding requirement.

Mr Dobinson said six months disruption should be assumed,with business activity in 2021 and 2022 based on performance before the on-set of Coronavirus.

If any longer-term impacts are envisaged these should be clearly displayed and explained, he advised.

Scheme details

Farmers Weekly has pulled together the latest information from banking experts on what the scheme offers and who can apply.

Q. What does the Coronavirus Business Interruption Loan Scheme (CBILS) offer?
Announced by chancellor of the exchequer Rishi Sunak on 17 March, the scheme offers access to loans, overdrafts, invoice finance and asset finance of up to £5m.

Term loans are offered for up to six years, while overdrafts and invoice finance are offered for up to three years.

Individual banks may offer different term periods up to these maximums.

There is no tie-in, so a customer can repay early with no penalty.

In addition, the government will pay interest and fees for the first 12 months – a Business Interruption Payment (BIP).

The bank also benefits, as it can claim up to 80% of any defaulted loan back from the state.

Despite this, a firm can only access finance if it can prove it has been adversely impacted by the coronavirus and it presents a borrowing proposal which the lender would have considered viable had the coronavirus crisis not happened.

This means showing, through accounts and forecasts, that it can be viable again in “normal trading” and be capable of repaying the loan.

Q. What interest rates can I expect to pay?
Normal commercial rates relative to the application – this may not be the same as existing loans a customer has, as circumstances will be looked at individually.

Q. Should I regard the CBILS as a first or last resort if other “normal” financial help is available to me?
The majority of farmers requiring help have so far opted to build on existing facilities via overdraft extensions, or payment holidays on loans and asset finance.

Where there is a clear business interruption because of Covid-19, farmers are fully entitled to apply for the CBILS and would be entitled to no interest payments on the first 12 months of any loan.

Most mainstream banks are providing some form of capital payment holiday on loans and increases in overdraft as a result of coronavirus.

Q. Are farmers eligible for these loans despite receiving subsidy payments?
The agricultural sector has the same eligibility criteria as all of the other sectors within the CBILS.

Some banks had initially expressed concern that as farm businesses already receive government funding in the form of subsidy payments, they would not be eligible for the CBILS, as it would violate state aid rules.

These are rules that underpin some trade agreements, including with the EU, to prevent government support distorting market competition and cap the amount of money a business can receive from the government.

For an agricultural business, this is restricted to a maximum of €100,000/year (£88,000), with the government clarifying that the BIP – the interest and fees repayment – will count towards this total but not existing farm subsidy payments.

This means

More information on the CBILS can be found on the British Business Bank website.