BEIS – BANK LOAN CRITERIA FOR RESTRUCTURED BUSINESSES  – 20 April 2020
Dr Julian Lewis: To ask the Secretary of State for Business, Energy and Industrial Strategy, if he will make it his policy that (a) businesses that have become profitable after recent restructuring should not be precluded from being granted emergency business loans on the basis of unprofitable trading figures prior to their restructuring and (b) those businesses should be assessed on their recent profitability on the same basis as start-up businesses of a similar size. 
[Due for Answer on 27 April. Answered on 28 April.]
The Parliamentary Under-Secretary of State for Small Business, Consumers and Labour Markets (Paul Scully): The Coronavirus Business Interruption Loan Scheme (CBILS) provides support to small businesses which were viable before the Covid-19 outbreak but are experiencing temporary adverse impacts due to Coronavirus.
In order for a business to be eligible for the CBILs, it must be considered “viable” by the lender. The lender must consider that the applicant (or its business group) has a viable business proposition determined by the lender’s underwriting policies. Any concerns over its short-to-medium term business performance due to the uncertainty and impact of COVID-19 cannot be taken into account. The applicant must still satisfy the other eligibility criteria of the CBILS.
For smaller value facilities (e.g. those of £30,000 or below) in determining the eligibility of the applicant, lenders may decide to determine the applicant’s credit worthiness based on its internal credit scoring models.
Corresponding changes have been made to the eligibility criterion which previously required the applicant (or its business group) to have a business proposition that can reasonably be expected to enable it to meet its repayment obligations under a proposed facility.
The Coronavirus Business Interruption Loan Scheme cannot be used where an applicant was an “undertaking in difficulty” (UID) as at 31 December 2019. UID is defined to include businesses that have accumulated losses greater than half of their subscribed share capital as at 31 December 2019. In practice this means certain fast growth businesses may not be eligible for the CBILS (unless the business is less than three years old).
The requirement for an UID assessment is a requirement under the European Commission’s Temporary State Aid measures and a direct result of State Aid clearance. The need for UID checks to be carried out for CBILS facilities below £30k has already been removed by the British Business Bank on the basis that loans of this size are considered to involve a de minimis amount of State Aid. For facilities above £30k, lenders are required to gain comfort that an SME is not an UID, but this includes the option for lenders to rely on self-certification for facilities of any size (i.e. up to £5m).