(LOANS) Social Investment Business: Resilience and Recovery Loan Fund (funded by Big Society Capital)
Overview
Who is it for?
Many charities and social enterprises have been affected by the current crisis and lockdown, and have lost income. In many cases, grants will be the most appropriate answer (for a full range of grant sources, see SIB and Good Finance pages); other organisations will be making use of other government schemes, such as furloughing staff (see NCVO's pages for more information); others will not want to add more debt or additional loans to what they already have.
In short, they want to be clear that this fund will not work for everyone, and they only have a limited amount of money which cannot come close to meeting the scale of current need in the sector. They hope it is a part of part of the answer for some.
RRLF is intended for those organisations who face a problem because expected income and activity has been delayed or disrupted. A loan may help with this, providing working capital until normal business can commence again.
What purposes can be funded?
Purposes that are included:
- Lending until government payments are received (e.g. contracts, furlough etc).
- Lending to cover delays in trade payments (trade debtors).
- Lending to support the rapid scaling up of an existing business model to meet an increased demand for services during the crisis.
- Lending to provide a bridge to cover revenue shortfall for proven and profitable trading activity.
Regarding Purpose Number 4 above: trading or retail models that rely heavily on footfall / shared office space that are likely to continue to be affected by social distancing are unlikely to be suitable/be able to prove viability.
Eligiblity?
This fund is only for social sector organisations: charities and social enterprises. Their initial investor is Big Society Capital - their remit (under Dormant Accounts Act) is to invest money in organisations that 'exist wholly or mainly to provide benefit for society or the environment'; so any organisations need to be able to meet what is set out in Big Society Capital's governance principles.
This includes charities, community interest companies and community benefit societies – organisations that are not one of these legal forms (ie just a company limited by guarantee or company limited by shares) will need to demonstrate social objects / purpose in their Articles.
Eligible applicants will:
- have been trading for a minimum of two years.
- have a minimum turnover of £400k (to ensure the loan size does not exceed 25% of turnover in the last financial year)
- have a turnover of less than £45m (whole group – if applicable).
- have more than 50% of income from trading activity (whole group – if applicable) - this eligibility criteria does not apply to registered charities and further education colleges.
- trade in the UK and the loan will be used to support trading in the UK.
- be able to confirm that the organisation has been adversely impacted by COVID-19.
- be able to confirm that the organisation was not an “undertaking in difficulty” as at 31 December 2019
- be able to confirm that the loan will not be used in an excluded sector.
More details on excluded sectors, what qualifies as an ‘undertaking in difficulty’ and other aspects of CBILS eligibility can be found on the British Business Bank website.
What are the product details?
Product: Term Loan
Size: £100,000 - £500,000
Term: A minimum of 1 year and a maximum of 3 years
Interest fee:
- 9% per annum interest rate charged for the first twelve months to reflect the higher risk to the fund during the capital repayment holiday
(covered by Government and no charge to the borrower) - 6.5% per annum for years 2 and 3 (after principal payments start)
- Interest calculated on the declining outstanding balance
- Payable quarterly in arrears
- Default interest rate 2.5% above the fixed rate to reflect the higher risk of no capital repayments in line with the initial period
Arrangement fee: 4% on the value of the loan
(covered by Government and no charge to the borrower)
Drawdown:
- Full amount drawn down on signing
- No redrawing of repaid amounts
Repayment:
- Capital repayment holiday for 12 months
- Amortised quarterly repayments in equal instalments commencing 12 months from drawdownPrepayment:
Prepayment: Permitted at any time without penalty
Security: Available security will be reviewed. Loans may be unsecured or security will be taken in the form of a standard fixed and floating charge where available
It is important to state that this is a loan and the borrowing organisation remains liable for the debt.
They are starting at £100k-£500k for a number of reasons:
- there are other investors (for example on the Growth Fund & CIEF) who do loans below that threshold; check Good Finance for these social investors and more
- many of the grant programmes already announced or forthcoming have been focused on smaller organisations
- evidence from social investors that there is demand in this range
They intend to review regularly (c. every two weeks) to assess whether this range needs amending to reflect demand.
What is the Coronavirus Business Interruption Loan Scheme (CBILS)?
CBILS is one of several schemes announced by Government to support businesses in the last few weeks. It is only available through lenders accredited by the British Business Bank – SIB is an accredited lender.
Key features of the scheme include:
- Aims to support smaller businesses across the UK who are experiencing lost or deferred revenues, leading to disruptions to their cashflow.
- Provides the lender with an 80% guarantee if the borrower fails to repay. However, as stated below the borrower always remains 100% liable for the debt.
- The Government offers a Business Interruption Payment (BIP) to cover the borrower’s interest and fees for a 12 month period, so the borrower pays no admin fees and interest in year one.
The provision of the CBILS Guarantee does NOT remove any the borrower’s liability for repaying the loan.
In the event of the borrower defaulting on their loan repayments, the lender will seek to recover the full amount outstanding from the borrower.
Any monies received by the lender under the CBILS Guarantee does not reduce the borrower’s liability in any way.
It is worth noting that RRLF will not take any personal guarantees.