2020年4月16日
As economies around the world scramble to mitigate the long term impact of the economic shock caused by COVID-19, most governments are hurriedly rolling out extensive financial support and stimulus programs for businesses of all shapes and sizes.
The CARES Act seemingly presents challenges for venture-backed start-ups due to the "affiliate" rules. As such, those groups with a meaningful UK subsidiary may wish to consider whether they are eligible for support being offered by the UK Government at this time.
A number of financial support schemes have been launched in the UK, but the most relevant of these is likely to be the Coronavirus Business Interruption Loan Scheme (CBILS).
CBILS is up and running, and funds have already been deployed to eligible borrowers. The scheme works as follows:
The eligibility criteria raise a few key questions for US VC backed technology companies, in particular:
There is very limited information available at this stage as to how these criteria are being applied by the various accredited lenders – a brief overview of the approach being taken by some of the largest accredited lenders is set out below.
Accredited lender |
Meaning of "UK based" |
Meaning of "not in financial difficulty and not loss making" |
HSBC (existing customers only) |
Operate in the UK and use funding to support business activity in the UK |
No additional clarity |
Barclays |
UK based and operate in the UK |
Business is not subject to collections proceedings or collective insolvency proceedings |
Bank of Scotland and Lloyds (existing customers only) |
Based in the UK and loan funds must be used to support trading in the UK |
No accumulated losses greater than 50% of subscribed share capital as at 31 December 2019; business is not subject to collections proceedings or collective insolvency proceedings |
NatWest |
No additional clarity |
Business is not subject to collections proceedings or collective insolvency proceedings |
There is clearly a need for some sort of meaningful business presence in the UK, but the mere fact that such business has an overseas parent company or overseas investors does not render it automatically ineligible. Additionally, it is likely that there is a requirement that the UK business be a profit-making trading business. This will mean that the scheme is inaccessible for loss-making start-up businesses. There is a question mark over whether cost plus structures will be eligible, as lenders will need to determine whether or not such structures meet the trading requirements.
Regarding the requirement that group turnover not exceed £45,000,000 per annum, there is limited additional guidance available from the accredited lenders themselves. However, a report released on 9 April 2020 by the British Private Equity & Venture Capital Association (the BVCA) suggests that some lenders are denying private equity and venture capital backed SMEs access to the scheme by aggregating the combined turnover of a firms portfolio companies when considering the £45,000,000 threshold. The BVCA has written to Chancellor of the Exchequer, urging greater clarity on this point.
Demand for this product has so far vastly outweighed supply, and as such, the existing accredited banks are generally prioritising existing customers, but a number of additional banks are looking to become accredited quickly. Whether or not your existing relationship bank is currently accredited, we would suggest approaching them first to secure additional liquidity to see if they can assist you, as a number of lenders are in the process of seeking to become accredited and an additional five were announced on 11 April 2020.
Following that, there is nothing prohibiting you from approaching other accredited lenders to see if they can assist, as each is likely to have a reasonably wide margin of discretion as to how the eligibility criteria are applied, and therefore there is likely to be some variation of approach between lenders.
There has been mounting criticism in the press over the last few days that only a fraction of those businesses applying have successfully been granted a CBILS loan. Whether this is due to an administrative bottleneck or a very narrow interpretation of the eligibility criteria remains to be seen, but we will watch with interest as government guidance continues to develop.
For larger businesses, the Coronavirus Large Business Interruption Loan Scheme (CBILS+) has recently been announced and is expected to launch before the end of April 2020. Although there is very little detail available on this scheme at the moment, we're expecting it to closely mirror some of the features of CBILS, but to provide up to £25,000,000 of liquidity for businesses with a group turnover between £45,000,000 and £500,000,000.
Notwithstanding this unprecedented level of UK Government support, it is widely acknowledged that the lack of support for loss-making start-ups needs to be addressed to ensure that the most innovative businesses survive this crisis. HM Treasury is under ministerial pressure to develop a program to support such start-ups, and we're closely monitoring developments.