Updated: Covid-19 Business Loans Schemes & Financial Liquidity

On 3 April the Chancellor announced both improvements to the Coronavirus Business Interruption Loan Scheme (CBILS) for SMEs (see our update 20 March) and a new Coronavirus Large Business Interruption Loan Scheme (CLBILS).

For very large businesses which make a significant contribution to the UK economy, the Bank of England’s Covid Corporate Financing Scheme (CCFS) is available.

The changes to CBILS are intended to make it easier for businesses to access loans following criticism from businesses that they were still not able to access any financial support after the announcement from the Chancellor in March.

The announcement of CLBILS is intended to open up the scheme to larger businesses that previously were too large for CBILS but which were also unable to meet the requirements for CCFS.

SME loan scheme improvements

Loans of up to £5m are available under CBILS for businesses with a group turnover of less than £45m. From 3 April:

• CBILS has been extended to almost all SMEs, not just to those unable to secure regular commercial funding (e.g. due to a lack of security);
• loans are available for terms of up to six years;
• overdraft and finance facilities are available for up to three years;
• the requirement for business owners to provide personal guarantees for loans under £250k has been removed; and
• for loans of £250k+, lenders may require personal guarantees but the guarantees must exclude the business owner’s principal private residence and will be capped at 20% of the CBILS balance after business assets have been realized.

Government-backed loans of up to £25m for large businesses

CLBILS is broadly similar to CBILS. The scheme will provide loans of up to £25m to businesses with a group turnover between £45m-£250m and loans of up to £50m to businesses with a group turnover of over £250m. On 16^th April HM Treasury announced that the original £500m group turnover ceiling has been removed. From 20^th April:

• funding is available for terms of between three months and three years;
• no provide personal guarantees can be required for loans under £250k; and
• for loans of £250k+, lenders may require personal guarantees but these will be capped at 20% of the CLBILS balance after business assets have been realised.

Scheme Administration

Both schemes will be delivered by the British Business Bank via over 40 accredited lenders to support businesses access lending and overdrafts facilities. Businesses will be liable for the repayment of the loans, but the Government guarantees 80% repayment of each loan should the borrowing business default on repayments. This guarantee is to give lenders the confidence to provide finance to businesses.

The Government will not charge lenders any arrangement fees for funding the loans lenders make under the schemes and it will not charge interest for the first 12 months of any loan under CBILS. In turn lenders are expected pass on these savings to borrowers by not: imposing arrangement fees, charging interest or requiring repayments in the first 12 months of the loan, albeit there does not appear to be anything to stop lenders going against these expectations, so the approach of different lenders will no doubt vary.

How to Apply

Businesses must apply to one of the accredited lenders, usually via the lender’s website. The lender decides whether to offer finance based upon the financial data of the business such as management accounts, cash flow forecasts, historic accounts, assets and business plans. The borrowing proposal must have been a viable proposition in the absence of Covid-19. If a lender turns down an application, a business can apply to different lenders.

Comment

Anecdotal evidence suggests that, until the announcement on 3 April, lenders were:

• extending overdraft facilities and offering trade finance and small business loans programmes instead of offering loans under CBILS;
• only offering loans under CBILS to existing customers who were ineligible for that lender’s existing lending programmes; and
• in some instances demanding high prohibitive interest rates.

While the approach of extending current facilities and limiting their offers to existing customers is understandable from a lenders perspective, as lenders can quickly assess the trading history of the business, it is fair to say that most businesses appear aggrieved that the lenders’ approach to before 3 April went against the spirit of the Government’s support package. The Government has not capped interest rates that lenders can charge under the schemes. It will be interesting to see whether finance under CBILS becomes more readily available following the announcement on the 3 April. It is also open see whether businesses will also seek to use CBILS, particularly where to date some of the banks have appeared unwilling to pass on the close to 0% rates that they are able to borrow against.

For further advice on your finance and banking support, including advice on personal guarantees, please get in touch with:

• Richard Hiscoke (Legal Director – Corporate)
• Monica Macheng (Partner – Corporate)
• Christian Hunt (Partner - Corporate)
• David Moore (Partner – Banking and Finance)

For further support and advice relating to the impact of COVID-19, please view our COVID-19 Advisory Service page.