Can you save on your CBILS loan repayment costs by refinancing for a RLS loan?

8 Aug 2021

Last week, the Financial Times reported that as much as £5bn of state-backed government Covid-19 funding is at risk of not being repaid. So, what can business owners who took out a government-back loan – or any other type of finance – do to help ease the financial burden? For many, refinancing debt using the RLS could reduce repayment costs.

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The Coronavirus Business Interruption Loan Scheme (CBILS) offered a valuable source of emergency finance for UK businesses during the first year of the coronavirus pandemic. By the end of the scheme, £23.28bn was loaned through 98,344 facilities. 

One of the biggest benefits of the scheme was that the government covered the first 12 months of interest payments. 

However, many businesses are now getting to the stage where they need to start paying the interest on their CBILS facility. From hospitality businesses to construction firms, some business owners are worried that they may not be able to meet their interest repayments due to continuing cash flow disruption. 

Others are looking for ways to reduce the cost of their repayments. 

Earlier in the year the government launched the Pay As You Grow (PAYG) Scheme to help Bounce Back Loan Scheme (BBLS) borrowers. It allowed businesses to extend their loan term from six years to ten, with a fixed interest rate of 2.5%. 

During the ten years borrowers have the opportunity to switch to interest-only repayments for six months on three occasions, or take a repayment holiday for six months once. 

While this is beneficial for those who took out a BBLS loan, what can CBILS and non-government backed borrowers do to save on repayments?

Can I refinance my debt to the Recovery Loan Scheme?

Yes. Eligible businesses may be able to refinance their CBILS (or other debt) to the Recovery Loan Scheme (RLS), and in doing so save money on repayment costs. 

According to the British Business Bank:

“Businesses can, in certain circumstances, use an RLS facility to refinance existing debt where total financing needs (including any increase) are greater than the minimum facility sizes available under the Scheme. 

For example, where a business is seeking to put itself on a more stable financial footing and/ or improve its working capital position, then, in principle, a RLS facility could be provided, providing the business fulfils the Scheme eligibility criteria.”

Businesses can refinance their debt with or without increasing the original borrowing. All types of businesses can apply, including sole traders, corporations, limited partnerships, limited liability partnerships, co-operatives and more. Eligible startups can also apply.

Bear in mind that the CBILS repayment profile is shortened because of the 12 months interest/payment free period, so the business borrows over five years and repay in four, resulting in considerably higher monthly payments.

By refinancing the loan to RLS, the business brings the debt back to a longer payment term and reduces the monthly repayments, even if the interest rate is higher.

The RLS is designed to help UK businesses of any size access the funding they need to recover and grow during the coronavirus pandemic and following the lockdown. Like its predecessor the CBILS, the funds can be used for any legitimate business purpose, including managing cash flow, investment and growth. 

The amount of finance available starts at £1,000 for asset and invoice finance and £25,001 for term loans and overdrafts. It’s important to be aware that unlike the CBILS, businesses are required to meet the costs of interest payments and any fees associated with the facility from the outset.



What happens if I can’t meet CBILS repayments?

CBILS borrowers have always been 100% liable for their loan, despite the government guarantee. If a business can’t meet scheduled repayments or is in breach of another loan term, the lender has the right to take action against the borrower. 

A default can cause problems, including the need to repay the loan in full, a lower credit rating, enforcement under security or personal guarantees (if a PG was required), and in some cases, insolvency or bankruptcy. 

The lender might be able to get repayment from the government following a default, however the government has the right to seek repayment from the borrower. Anyone who thinks they may default on their loan should speak with their lender first, and consider seeking legal and financial advice. 

Some businesses were required to offer a personal guarantee when they signed up for a CBILS facility. If a business defaults on a personal guarantee-backed loan under the CBILS, the lender will seek outstanding funds from the guarantor of the loan before requesting recovery from the government. 

If you’re worried about defaulting on your CBILS loan or another type of business finance, you can get in touch with the Business Debt Advice service, which provides ​​free and independent debt advice over the phone and online.

Refinance your CBILS loan

Simon Cureton

Chief Executive Officer

Simon has been Chief Executive Officer at Funding Options since 2019, spearheading its transformation into a leading fintech with the launch of its Funding Cloud platform. Simon has over 27 years of experience in financial services, having held senior posts at some of the biggest players in the industry all over the world.

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