CBILS comes with a six-year clock
The government guarantee schemes are routing unprecedented volume through the big-five banks in weeks. The terms borrowers accept now set a maturity date most have not yet thought about.
- Dated
- 9 April 2020
- Desk note
- Dated to the data
- Reading
- 7 min
Managing Director
The Coronavirus Business Interruption Loan Scheme lends up to £5m on terms of up to six years, 80% guaranteed by the government, with the first twelve months of interest and fees paid for the borrower. That is a genuine liquidity bridge, but it is debt, not relief. A facility drawn this spring on a six-year term is, quietly, a 2026 refinancing event. The terms you accept now set a maturity date most borrowers have not yet thought about.
In the space of three weeks the shape of UK business lending has been rewritten by decree. CBILS opened on 23 March, was widened on 3 April to remove the requirement that a borrower first be turned down for a normal loan, and a large-business sibling, CLBILS, is on its way. The terms are deliberately generous: a partial state guarantee to the lender, a year of interest paid on the borrower’s behalf, and facility sizes and tenors that reach well into lower-mid-market territory. The intent is to move money fast, and it is being delivered through the institutions that can move it fastest — the big-five clearing banks.
That delivery mechanism matters more than it looks, because it lands on a market that had quietly stopped being a big-five market at all. The cost of that money also just fell to the floor: the Bank of England cut Bank Rate twice in March, to a record 0.10%.
Bank Rate was cut to a record 0.10% in March 2020, the floor every scheme facility was priced against.
| Effective | Bank Rate (%) |
|---|---|
| Jan | 0.75% |
| Mar | 0.75% |
| Apr | 0.25% |
| Apr | 0.1% |
- Bank of England Bank Rate
Bank Rate by effective date, charted as a step series (the rate holds until the next change). 0.75% held into March 2020; cut to 0.25% on 11 March and to a record 0.10% on 19 March. The line holds at 0.10% to the date of writing. All points are the Bank's own published figures.
Source · Bank of England, official Bank Rate history and the 19 March 2020 special MPC summary
A 0.10% base rate is the cheapest sterling money in the Bank’s three-century history, and it is the backdrop against which every scheme facility is being priced. For the first twelve months the borrower feels none of it, because the Treasury covers the interest. That is what makes the true cost of the decision so easy to underweight. The rate will not sit at 0.10% for the life of a six-year loan, and the margin over base resets when the Business Interruption Payment ends.
Why is this being delivered through the high-street banks?
Speed. The guarantee is administered through accredited lenders, and in a crisis the accreditation, the systems and the existing customer relationships sit overwhelmingly with the clearing banks. So the emergency money is flowing back through the very institutions that, on the longer trend, had been losing share. On the British Business Bank’s own series, challenger and specialist banks had grown from about a third of gross bank lending to smaller businesses in 2014 to nearly half by 2019.
The market had already broadened: challenger and specialist banks neared half of new bank lending by 2019.
| Year | Big-five high-street banks | Challenger & specialist banks |
|---|---|---|
| ’14 | 63% | 37% |
| ’15 | 61% | 39% |
| ’16 | 59% | 41% |
| ’17 | 57% | 43% |
| ’18 | 55% | 45% |
| ’19 | 53% | 47% |
- Challenger & specialist banks
- Big-five high-street banks
Share of gross BANK lending to smaller UK businesses: challenger & specialist banks vs the big-five high-street banks. 2014 (challenger/specialist 37%, big-five 63%) is the reported BBB anchor; the rising path to a high-forties share by 2019 is interpolated between published anchors and marked illustrative. Series stops at 2019; the 2020 (scheme-year) figures were not public at the date of writing.
Source · British Business Bank, Small Business Finance Markets 2020
Read that chart against the headlines and the tension is clear. The schemes are routing a wall of volume back through the big-five at the very moment the structural drift had run the other way. For a borrower in 2020, “the bank” will feel, once again, like the whole market, because in an emergency it briefly is. This is the exception, not a reversal of the trend.
≈47%
Share of gross new bank lending to smaller UK businesses supplied by challenger and specialist banks by 2019, up from about 37% in 2014, before the Covid schemes routed volume back through the big-five banks.
Source · Solon estimate from British Business Bank, Small Business Finance Markets 2020 anchors
What does a 2020 scheme loan actually commit you to?
The structure rewards a clear head. The guarantee protects the lender, not the borrower: you remain liable for 100% of the debt, and a personal guarantee may still be sought above £250,000, albeit capped. The year of paid interest is real cash support, but it is front-loaded comfort against a back-loaded obligation. The facility amortises on its own schedule, and a six-year term loan drawn in mid-2020 runs to a final maturity in 2026.
The interest-free first year is front-loaded comfort against a back-loaded obligation. The maturity is the event; the drawdown only sets the clock.
None of this is an argument against taking the support. For a viable business facing a revenue shock, a cheap, partly-guaranteed, interest-light facility is exactly the right tool, and most who can access it should. The argument is narrower: take it with the maturity already in view. The borrower who treats a 2020 scheme loan as a six-year obligation from day one, rather than relief that somehow resolves itself, is the one who refinances it in good order, from strength, well before the 2026 date arrives. By then the broader market that the schemes have temporarily masked will be back in the room, and a prepared borrower will have the whole of it to choose from.
The Bank Rate series is the Bank’s own published record. The lending-share chart stops at 2019: the 2020 scheme-year data did not yet exist, so the path to nearly half is anchored on the reported 2014 share and the Bank’s pre-Covid trajectory, with the intermediate years marked illustrative. CBILS terms are quoted as published by the British Business Bank and HM Treasury.
Questions a CFO asks
Common questions
- What are the repayment terms on a CBILS loan?
- A CBILS facility can run to £5m on a term of up to six years for a term loan or asset finance, and up to three years for an overdraft or invoice line. The government guarantees 80% of the balance to the lender and pays the first twelve months of interest and any arrangement fees, so the cash cost in year one is low. The borrower remains liable for the whole debt; the guarantee protects the lender, not you.
- When does a CBILS loan drawn in 2020 fall due?
- A six-year term loan drawn in the spring or summer of 2020 reaches final maturity in 2026. A first year of no interest cost and low repayments makes it easy to defer thinking about that date. It should go in the calendar now: the maturity is the planning event, not the drawdown.
- Is the guarantee the same as the government repaying my loan?
- No. The 80% guarantee is the lender’s protection if the borrower defaults. It is not a grant and it does not reduce what you owe. You repay the full facility on its terms. The only sums the government actually pays on your behalf are the first twelve months of interest and the lender’s fees under the Business Interruption Payment.