The COVID-19 pandemic continues to put great pressure on businesses. In line with an international trend in developed economies, the UK Government has stepped in to provide support.
A range of loans are available to support businesses across the UK who are experiencing lost or deferred revenues, leading to disruptions in their cashflow (latest guidance available here).
The UK Government has to date announced five schemes under which such loans will be made available. The COVID Corporate Financing Facility, the Coronavirus Large Business Interruption Loan Scheme and the Coronavirus Business Interruption Loan Scheme are all up and running, with borrowers accessing facilities under these schemes.
The fourth loan scheme was announced on 20 April 2020 for launch in May 2020. This scheme is being developed as part of a wider package of support for UK businesses that are driving innovation and development in some of the most dynamic sectors of the UK economy, but which may not be able to access any of the existing loan schemes due to the financial eligibility criteria of such schemes.
The final scheme was announced on 27 April 2020, and is aimed at the smallest businesses that need rapid cash injections to keep operating during the pandemic.
COVID Corporate Financing Facility (CCFF)
CCFF is designed for large, established, credit worthy corporates looking to raise a significant amount of short term liquidity.
- Under this scheme, the Bank of England will purchase commercial paper issued by eligible borrowers.
- The commercial paper can have a term of between 1 week and 12 months.
- The minimum size of an individual security is £1 million and the maximum size is will be subject to individual issuer limits, but indicative guidance suggests that up to £1bn could be available for the most highly rated corporates.
- The CCFF will be priced on terms comparable to those prevailing in the market before the COVID-19 economic shock.
- There is no need to have previously issued commercial paper in order to participate.
Eligibility for participation in this scheme is based on:
- Demonstration of a material contribution to the UK economy: this would normally be UK incorporated companies (including those with foreign incorporated parents) with a genuine business in the UK, significant employment in the UK and with their headquarters in the UK.
- Demonstration of sound financial health as at 1 March 2020: participants should have a short or long-term rating of investment grade or be considered by their relationship banks to be the equivalent of "investment grade", in which case the Bank of England will undertake due diligence to ascertain an imputed credit rating.
- Not falling within the category of businesses which are ineligible: that is, leveraged investment vehicles and companies within groups which are predominantly active in businesses subject to financial sector regulation will not be eligible to participate in this scheme.
Coronavirus Large Business Interruption Loan Scheme (CBILS+)
CBILS+ is designed for UK businesses with an annual turnover above £45m.
- Businesses with an annual turnover in excess of £45m can borrower up to £200m under CBILS+ with businesses with an annual turnover above £250m being able to borrow a maximum amount of £50m. While these are the scheme limits, lenders will not allow businesses to borrow more than either double their most recent annual wage bill or 25% of the company’s total turnover for the most recent year available. With appropriate justification, lenders may increase the amount borrowed to cover liquidity needs for the next 12 months.
- The lender will receive a government-backed guarantee for 80% of the outstanding balance of any facility made available under CBILS+. The business will remain liable for the total amount they borrow. Businesses will also remain liable for all interest and fees charged by the lender (including initial fees and interest for the first 12 months).
- Maximum loan term is 3 years for any facility under CBILS+.
To be eligible to apply for a facility under CBILS+, businesses must:
- have UK based business activity
- have an annual turnover of more than £45m
- be able to self-certify that they have been adversely affected by the COVID-19 pandemic
- have a borrowing proposal which, but for the COVID-19 pandemic, the lender would consider viable; the lender must also believe that the loan will enable the business to trade out of any short-to-medium cashflow difficulty and if the facility is granted, the business is not expected to go out of business in the short-to-medium term, and
- not have accessed the CCFF scheme.
Other points to note include:
- Personal guarantees cannot be requested for loans of less than £250,000. If a personal guarantee is required by a lender for loans above £250,000, the maximum liability under the guarantee is 20% of the losses under the facility after all other recoveries have been applied.
- Any business borrowing a CBILS+ loan of more than £50m will be, subject to limited exceptions, restricted from paying cash bonuses to senior management or awarding any pay rise to senior management, declaring any dividends or other distributions (whether in cash or in kind), and paying any management, advisory or other fee to any shareholder.
- Any business borrowing a CBILS+ loan of up to £50m can continue to pay dividends to shareholders, but the amount of the dividend cannot be increased during the term of the loan.
- Businesses must apply for the scheme through British Business Bank accredited lenders. There is a separate list of accredited lenders for those wishing to borrow more than £50m.
Coronavirus Business Interruption Loan Scheme (CBILS)
The CBILS is designed for UK-based SMEs with group turnover of no more than £45m per annum looking to raise up to £5m.
- Businesses can borrow up to £5m for a term of up to 6 years, with 80% of each such loan being guaranteed to the lender by the Government.
- No initial fee is chargeable to the borrower for a loan under the scheme, and the Government will pay all interest on the loan for the first 12 months. Businesses will be responsible for all further interest payments and for repayment of the loan at the end of the term.
- Any business wishing to apply must not have been in financial difficulty as at 31 December 2019 and cannot have been loss making at that time. They will also have to demonstrate that they will be a viable business once the pandemic is over (however, the Chancellor of the Exchequer has announced that the viability test for CBILS applicants will soon be simplified further).
- Personal guarantees cannot be requested for loans of less than £250,000, but they may be required for larger loans. Any personal guarantee must be limited to an amount equal to 20% of the losses under the facility after all other recoveries have been applied.
- Businesses must apply for the scheme through accredited lenders, a list of which can be found on the British Business Bank's website. There are currently more than 50 accredited lenders, but more lenders have requested accredited lender status and are awaiting approval.
£1.25 billion Coronavirus package to protect firms driving innovation and development in the UK
The Coronavirus package is designed for high growth companies and companies focusing on research and development.
- The Treasury announced this scheme on 20 April 2020 to protect firms which are driving innovation in the UK.
The package includes:
- a £500m investment fund (the Future Fund) for high-growth companies impacted by the crisis, made up of funding from the Government and the private sector, and
- £750m of targeted support for the most R&D intensive SMEs which will be available through Innovate UK's grants and loan scheme.
The following additional information was made available about the Future Fund:
- The Future Fund will be delivered in partnership with the British Business Bank, and will provide UK based companies with between £125,000 and £5m from the Government, with private investors at least matching the Government's commitment. The loans will automatically convert into equity in the company's next qualifying funding round or at the end of the loan term if they are not repaid. More information about the Future Fund is available here.
- Innovate UK is the national innovation agency. It will accelerate up to £200m of grant and loan payments for its existing Innovate UK customers on an opt-in basis. An extra £550m will also be made available to increase support for existing customers and £175,000 of support will be offered to around 1,200 firms not currently in receipt of Innovate UK funding. The first payments are anticipated to be made available in mid-May.
Bounce Back Loan Scheme
Designed for small businesses, to provide rapid access to loans to help them survive the pandemic crisis.
- The Bounce Back Loan Scheme launched on 4 May 2020 with the aim of helping small businesses survive the consequences of the coronavirus pandemic. It is initially open until 4 November 2020, with the government retaining the right to extend this date.
- Under the scheme, businesses can borrow loan amounts of between £2,000 and £50,000, with the maximum loan being limited to an amount equivalent to 25% of their turnover.
- Although targeted at smaller businesses given the loan size, the scheme is open to most businesses and unlike other schemes, there are no eligibility turnover limits.
- Businesses are required to self-declare their eligibility for the Bounce Back Loan Scheme.
- Businesses can apply for Bounce Bank loans by way of a standardised, on-line application process to accredited lenders, with successful applicants receiving their loans within days of applying. Loans are made available for a term of 6 years with a fixed interest rate of 2.5% per annum (borrowers will be able to make early repayments without attracting any prepayment fees).
- As for loans made available under CBILS, the government will meet all fees and interest for the first 12 months. The borrower will also not be required to make any repayments during the first 12 months and no fees are payable by a borrower (or the lender) in connection with accessing the Bounce Back Loan Scheme.
- Lenders who make loans available under the scheme will benefit from a 100% government-backed guarantee.
- Personal guarantees are not permitted to be taken where Bounce Back Loans are concerned, and lenders cannot take recovery action over a borrower's personal assets.
- Borrowers cannot have both a loan under CBILS and a Bounce Back Loan at the same time, unless the Bounce Back Loan is taken out for the purposes of refinancing an existing loan under CBILS.
Our team will continue to monitor the situation and update you on any new developments that arise on these and other schemes in the coming weeks.