作者

Martin Yells

合伙人

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Lerika Joubert

合伙人

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Jonathan Marks

合伙人

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Heather Buttle

合伙人

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Amar Ali

合伙人

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Gareth Lawson

合伙人

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Dominic FitzPatrick

合伙人

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Christina Kelly

高级法律顾问

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Fiona Coady

高级法律顾问

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Matthew Sherr

高级律师

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作者

Martin Yells

合伙人

Read More

Lerika Joubert

合伙人

Read More

Jonathan Marks

合伙人

Read More

Heather Buttle

合伙人

Read More

Amar Ali

合伙人

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Gareth Lawson

合伙人

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Dominic FitzPatrick

合伙人

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Christina Kelly

高级法律顾问

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Fiona Coady

高级法律顾问

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Matthew Sherr

高级律师

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2020年4月16日

US VC companies and the UK Government business loan support

  • IN-DEPTH ANALYSIS

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:

  • CBILS is designed for UK-based SMEs with group turnover of no more than £45m per annum.
  • 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 UK government.
  • No initial fee is chargeable to the borrower for a loan under the scheme, and the UK 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.
  • Businesses must be able to certify they have been adversely affected by the COVID-19 pandemic. Any company that has not been impacted financially by the current situation will not be eligible for a loan.
  • Any business wishing to apply must not have been in financial difficulty as at 31 December 2019, cannot have been loss making at that time, and must not have gone into financial difficulty since that date, other than as a result of the coronavirus pandemic. They will also have to demonstrate that they will be a viable business once the pandemic is over.
  • Loan proceeds must primarily be used to support trading in the UK.
  • Eligible businesses will have to generate more than 50% of its turnover from trading activity.
  • 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 the 20% of the loan not guaranteed by the UK Government.
  • 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 over 40 accredited lenders, but more lenders have requested accredited lender status and are awaiting approval.
  • There is a short list of ineligible sectors (banks, insurers, reinsurers, certain education establishments etc), but most VC backed technology companies will not be caught by this ineligibility condition.

The eligibility criteria raise a few key questions for US VC backed technology companies, in particular:

  • What does it mean to be UK based?
  • Is consolidated annual turnover for the "group" for 12 months preceding the date of application £45m or less?
  • What does it mean to not be "in financial difficulty" or "loss making" as at 31 December 2019?

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.

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