CORONAVIRUS BUSINESS INTERRUPTION LOAN SCHEME CAN BE USED TO MAKE ACQUISITIONS
M&A activity in the UK has been given a shot in the arm with the news that the government’s Coronavirus Business Interruption Loan Scheme will apply to acquisitions.
Boris Rykov from the Business Sale Report was the first to report on this (see the full story on their website), and has provided further confirmation that major lenders classify buying a business as an “eligible purpose” for the funding, see HSBC’s CBILS page here (scroll down to see note 6 at the bottom) and the equivalent page for Lloyds here (see Section 1 point 9).
This is great news for businesses looking to strengthen their operations during the crisis by gaining additional cashflow or strategic assets through acquisition. For some companies, making a key acquisition right now will save their business, so access to this funding to buy a business could not have come at a better time. For others it will accelerate their growth, enabling acquisitions when they might have otherwise been more conservative.
For small business owners looking to sell, this is fantastic news as it will encourage more companies to make strategic acquisitions over the next six months. Simply put, there will be more buyers in the market than there otherwise would have been.
The funding is only accessible to businesses of course (not individual investors), but selling your business to another company is often the most sought-after outcome for sellers anyway. Overall it is very positive news for business owners looking to sell in the next 6 months.
Background:
The Coronavirus Business Interruption Loan Scheme (CBILS) was announced by the Chancellor a few days ago as one of the UK Government’s measures to support small businesses suffering from the impact of the COVID-19 pandemic. The scheme provides access to loans, invoice finance, asset finance and overdrafts of up to £5 million for up to 6 years.
To encourage lending the government will guarantee 80% of the loan, reducing the burden on the borrower to provide security and reducing the risk burden on the bank.
Furthermore, the government will pay the first 12 months of interest payments plus any fees from the lender, in what it calls a “Business Interruption Payment”. This effectively makes the first year’s payments on the loan more affordable and reduces the total cost of borrowing (assuming no impact on interest rate).
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