Rule change for Coronavirus Business Interruption Loan Scheme: could your charity now be eligible?

The rules for the Coronavirus Business Interruption Loan Scheme (CBILS) changed yesterday, to remove the requirement for charities to generate more than half of their income from trading activities in order to be eligible for the scheme.

This means that a greater number of charities may now be able to access loans, overdrafts, invoice finance and asset finance through the scheme, of up to £5 million for up to 6 years.

What has changed?

The CBILS was set up to support small and medium sized businesses, but it has always possible for charities to benefit from the scheme as well – provided they meet the following key criteria:

  • the charity is based in the UK
  • the charity has an annual turnover of up to £45 million
  • the charity has a borrowing proposal which the lender would consider viable, if not for the coronavirus pandemic
  • you can self-certify that the charity has been adversely impacted by coronavirus

However, the scheme was not intended to support shell companies, and so the Government also requires that an eligible SME must generate more than 50 per cent of its income from trading activities – the sale of goods or services.

This was a significant obstacle to many charities benefiting from the scheme; while some charities do generate significant income from trading, the vast majority do not.

Yesterday, the full rules of the scheme and guidance provided on the British Business Bank website was updated, and now includes the statement:

“NOTE: Registered Charities are exempt from the requirement that 50% of the applicant’s income must be derived from its Trading Activity.”

What should newly eligible charities do next?

It is great news that the Government has listened to the sector bodies campaigning for this change to the rules, so that registered charities no longer have to generate over half of their income from trading activities to participate in the scheme.

But – does this mean that charities now eligible for the scheme should rush out (metaphorically) and apply?

Not necessarily. While all new sources of possible funds may seem attractive to those in financial difficulties as a result of the pandemic, before making any application charity trustees should check:

  • Whether they have the power to borrow – the governing documents of some charities may contain restrictions in relation to borrowing.
  • Their charity’s financial situation – will the loan be repayable, and, even if it is, what effect will such repayment have on the ability of the charity to carry out its charitable purposes in the future?
  • Whether there will be any personal liability for the trustees in obtaining a loan, for example, if the charity has an unincorporated legal structure so that its trustees must enter into the loan arrangements personally, or if the trustees are required to give a personal guarantee.
  • Whether it is in the best interests of the charity to obtain a loan, taking all the relevant factors into account, and having sought advice from external advisors as necessary.


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