New lending facilities have been announced that will provide loan finance to charities, social enterprises, and small businesses - read Big Society Capital’s blog post about it here. They include the Resilience & Recovery Loan Fund, which has been established by Social Investment Business with support from Big Society Capital in response to the Covid-19 crisis.
The Resilience & Recovery Loan Fund will aim to offer loan finance to social enterprises and charities experiencing difficulties as a result of the COVID-19 crisis. The aim of this fund is to extend the government’s Coronavirus Business Interruption Loan Scheme (CBILS) to social enterprises and charities, making it easier for them to access.
In this post, we take a closer look at the Resilience & Recovery Loan Fund as well as other options for emergency finance, and what they mean for social enterprises and charities.
1. Why has Good Finance introduced an ‘emergency finance’ icon?
Social investors have responded to the Covid-19 crisis in different ways in order to support social enterprises and charities who require repayable finance to maintain cash flow or operations in the short-to-medium term, and where repayment is still viable.
To make it easier for our users to find the relevant social investors on Good Finance investor directory, we have introduced the new orange exclamation icon.
2. What is the Resilience and Recovery Loan Fund and why is it needed?
The Resilience and Recovery Loan Fund (RRLF) is a new fund for social enterprises and charities who are, as a result of COVID-19, experiencing disruptions.
For many organisations who have lost income, grants will be most appropriate, but in some cases where there is an additional cash flow need (for example where expected future payments are delayed) loans may be appropriate. Established by Social Investment Business with support from Big Society Capital, the RRLF will be delivered initially by three social investors.
Other social investors may be added in future. Social enterprises and charities can find out more information via the Good Finance Investor Directory. The fund is due to open to applications in mid-April, with the first loans completed by the start of May.
The Resilience and Recovery Loan Fund will be delivered by social investors who have a track record of working with social enterprises and charities. It is designed to extend CBILS access to social enterprises and charities who may not be able to access it elsewhere. Social enterprises and charities operate differently to commercial businesses and have income from a range of different sources that other lenders under this scheme might not be used to seeing; this can make access to traditional commercial finance challenging.
To find out more about the Resilience and Recovery Loan Fund, how it works and how it will be delivered, read the FAQs guide by Social Investment Business. More information will become available over time, so watch this space.
3. What is the Coronavirus Business Interruption Loan Scheme (CBILS)?
CBILS is one of a number of measures announced by the Government. It is available through the British Business Bank’s accredited lenders. The scheme is designed to support smaller businesses (SMEs) including social enterprises and charities who are experiencing cash flow difficulties as a result of COVID-19, but who are considered viable in the longer term.
UPDATE: Subsequently, registered charities were exempted from needing to reach the 50% trading requirement. Find out more here.
Key features of the scheme include:
- The first 12 months of the loan is interest free with no upfront charges to the business (after the first 12 months, the organisation is liable for the interest)
- Products under £250,000 will not require a personal guarantee
- For products over £250,000, a personal guarantee may be required at the lender’s discretion
- Where there is sufficient security available, it is likely that the lender will take such security in support of a CBILS facility
For more information, visit British Business Bank.
4. Can social enterprises and charities access other types of emergency finance using CBILS?
Yes. Social enterprises and charities can access CBILS as long as they meet the eligibility criteria. Other options to access investment which uses CBILS and lend to social enterprises and charities include:
Business Bounce Back Loans
UPDATE: The Business Bounce Back Loans initiative was subsequently announced.
This is100% government backed loan scheme for small business, which can be used to refinance CBILS.
- Businesses will be able to borrow between £2,000 and £50,000 and access the cash within days
- Loans will be interest free for the first 12 months, and businesses can apply online through a short and simple form
- Find out more here.
Community Investment Enterprise Facility (CIEF)
CIEF was set up to meet the needs of underserved small enterprises that have a positive impact in the communities they operate. It is managed by Social Investment Scotland and is delivered by Community Development Financial Institutions (CDFIs) including:
Coronavirus Business Loan Interruption Scheme (CBILS)
The British Business Bank has over 40 accredited lenders who currently offer CBILS. For some charities and social enterprises, their existing bank may be the best provider of CBILS. Some social investors who are accredited are also in the Good Finance investor directory.
5. What is the eligibility criteria for CBILS?
Social enterprises and charities from all sectors can apply for a loan through CBILS. This includes organisations who may not have previously used social investment.
To be eligible:
- Your trading activity must be UK based - trading includes any income generating activities except fundraising, donations and grants
- You must generate more than 50% of its turnover from trading
- Have an annual turnover of no more than £45m
- Have a viable business plan and where the loan will enable your organisation to trade out of any short-to-medium term difficulty
- Self-certify that your organisation’s finances have been adversely impacted by COVID-19.
6. Is the eligibility criteria for social enterprises and charities different to mainstream SMEs?
No. Social enterprises and charities will still need to meet the eligibility criteria for CBILS.
7. What is the cost of capital?
There are no upfront costs or additional charges for social enterprises and charities under CBILS.
This means the social enterprise or charity will only be liable for the interest after the first 12 months. Loan repayments will need to be made for the full duration of the borrowing period.
Social enterprises and charities will need to speak to the individual lender in order to establish what the cost of capital will be after the initial 12 month free period.
8. At what stage should my organisation consider applying for a loan?
You can contact one of the participating social investors listed in the Good Finance investor directory to discuss the options and next steps if:
- You are an eligible organisation
- You anticipate that you will need additional finance to support cash flow in the next 1-6 months
- You have a viable business model and expected income to repay the loan
9. How long will it take to get a decision on a loan?
Social investors are very aware that for customers affected by COVID-19, every day counts. As a result they will try to make a swift and timely decision. Each lender will still need to go through a due diligence process to ensure compliance with the CBILS requirements and that lending money to your organisation at this time is an appropriate and responsible action to take.
Social investor’s focus will be in ensuring that the right money is available to organisations at the time when they need it.
10. What happens if I am not able to make repayments or my organisation fails and has to close?
A social investor will only lend if they believe it will help to strengthen and support your organisation and there is a clear plan on how you will be able to repay the loan . However, if your organisation is struggling our advice is always to speak to your social investor as soon as possible. Social investors understand the challenges and business models of social enterprises and charities and are well placed to work with you to decide the best course of action for you and the customers you exist to serve.
CBILS gives the lender a government-backed guarantee for the loan repayments to encourage more lending. The borrower remains fully liable for the debt
11. What if my social enterprise or charity needs money for cash flow but can’t see how we can repay a loan? Where do I find out about other types of support?
It’s important to note that repayable finance will not be suitable for many organisations where a grant is what may be needed. Social enterprises and charities should explore all their options for finance so they understand the range of choices open to them.
To help you understand what is right for you, on Good Finance you’ll find: