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Changes to CBILS undertaking in difficulty test widens scope for smaller businesses

The British Business Bank announced a significant amendment to the Coronavirus Business Interruption Loan Scheme (CBILS) on 16 July 2020, following EU changes to State Aid Law. The change which is due to come into force on 30 July 2020 relaxes the ‘undertaking in difficulty’ criteria, opening up the door to smaller businesses in need of financial support as a result of the coronavirus pandemic. 

The change means that smaller businesses with fewer than 50 employees and less than £9,000,000 in annual turnover and/or annual balance sheet will not be considered undertakings in difficulty unless they are:

  • subject to collective insolvency procedure under national law, or
  • in receipt of rescue aid (which has not been repaid) or restructuring aid (and are still subject to a restructuring plan)

Prior to the change in EU State Aid Law, small businesses defined by EU rules as ‘undertakings in difficulty’ were prevented from receiving state support and therefore, deemed ineligible for assistance under the current structure of CBILS. In addition to this, data collected by UK Finance highlighted the need to widen the boundaries of CIBLS for smaller businesses due to the number of rejected applications.

The criteria for the classifications of a business in difficulty are subject to change from 30 July 2020 however, a business in difficulty was previously one that, as at 31 December 2019, had:

  • accumulated losses of more than half of its subscribed share capital for limited companies, or for unlimited liability companies its capital; or
  • started, or had fulfilled the criteria to be put into, collective insolvency proceedings; or
  • (where it does not meet the SME criteria) has fallen below solvency ratios for the previous two years

The rules remain the same for smaller businesses with more than 50 employees or more than £9,000,000 in annual turnover and/or annual balance sheet, as they will still be subject to the ‘undertaking in difficulty’ test.

Applicants will need to determine their turnover and number of employees in line with Commission Recommendation 2003/361/EC of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises.

The welcomed change to eligibility for CBILS opens up the gates for smaller businesses which may have been previously declined or unable to access CBILS through lenders due to automatic rejection. 

The Bounce Back Loan scheme remains unaffected and a separate loan scheme for start-ups affected by the coronavirus outbreak is available, also known as the Future Fund. 

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