The rapid onset of COVID-19 in the UK and its financial implications have led to a number of policy commitments by the Government to support business. The initial package of measures was announced in March 2020 and continues to evolve rapidly, including with modifications and additions to the initial package of measures announced. The current package of measures includes the following loan facility schemes:
- the Coronavirus Business Interruption Loan Scheme offering Government-guaranteed loans of up to £5 million for SMEs through the British Business Bank in partnership with accredited lenders ("CBILS");
- the Coronavirus Large Business Interruption Loan Scheme offering Government-guaranteed loans of up to £25 or £50 million for mid-market and large businesses (depending on turnover) through the British Business Bank in partnership with accredited lenders ("CLBILS");
- the Coronavirus Future Fund offering convertible Government-matched loans of up to £5 million to innovative companies through the British Business Bank (the "Future Fund"); and
- a lending facility from the Bank of
England under its Covid Corporate Financing Facility to help
support liquidity among investment-grade firms
("CCFF").
This update focuses on the Government finance schemes for which private equity backed businesses may be eligible.
The Coronavirus Business Interruption Loan Scheme (CBILS)
Background
The CBILS was launched on 23 March 2020 and was expanded on 6 April 2020. The scheme can provide facilities of up to £5 million for smaller businesses across the UK which are experiencing lost or deferred revenues, leading to disruptions to their cash flow. It supports a wide range of business finance products, including term loans, overdrafts, invoice finance and asset finance. The scheme provides a lender with a Government-backed guarantee for the loan repayments. A borrower always remains fully liable for the debt.
Key features
- Up to £5 million facility: The maximum value of a facility provided under the scheme will be £5 million.
- 80% guarantee: The scheme provides the lender with a Government-backed, 80% guarantee against the outstanding facility balance (excluding interest and fees).1
- No guarantee fee for SMEs to access the scheme: Lenders will pay a fee to access the scheme.
- Interest and fees paid by Government for 12 months: The Government will make a "Business Interruption Payment" to cover the first 12 months of interest payments and any lender-levied fees, so smaller businesses will benefit from no upfront costs and lower initial repayments.
- Finance terms: Finance terms are up to six years for term loans and asset finance facilities. For overdrafts and invoice finance facilities, terms will be up to three years.
- Security: At the discretion of the lender, the scheme may be used for unsecured lending for facilities of £250,000 and under. For facilities above £250,000, the lender was previously required to establish a lack or absence of security prior to businesses using the CBILS. Following the expansion of the scheme on 6 April 2020, insufficient security is no longer a condition to access.
- Personal guarantees: Following criticism that lenders were requiring personal guarantees as a condition to use of the scheme shortly after the CBILS went live, the Government prohibited lenders from requesting personal guarantees for facilities under £250,000. A personal guarantee may still be required at the lender's discretion for facilities above £250,000, but must exclude the principal private residence and recoveries under these must be capped at a maximum of 20% of the outstanding balance of the CBILS facility after the proceeds of business assets have been applied.
Eligibility criteria
To be eligible for a facility under the CBILS, an SME must:
- Be UK-based in its business activity, with annual turnover of no more than £45 million.
- Have a borrowing proposal which, were it not for the current pandemic, would be considered viable by the lender, and for which the lender believes the provision of finance will enable the business to trade out of any short-to-medium term difficulty. If the lender can offer finance on normal commercial terms without the need to make use of the scheme, it will do so.
- Self-certify that it has been adversely impacted by COVID-19.
- Not have been classed as a "business in difficulty" on 31 December 2019 (as defined on the British Business Bank website), if applying to borrow £30,000 or more.
- If a business has a private equity investor, even where that investor holds a majority or controlling stake, they can still be eligible for the CBILS.
- When assessing the £45 million turnover eligibility threshold, the business will be considered separately to the private equity investor, and its other investments.
- To determine the maximum amount available to a business under the CBILS, the business is treated as standalone from its private equity investor, and the other businesses it may have invested in. Therefore the £5 million maximum loan size applies to that business only.
Exclusions include:
- The following trades and organisations are not eligible to apply: banks, building societies, insurers and reinsurers (insurance brokers are eligible); public sector organisations as classified by the Office of National Statistics; further education establishments, if they are grant-funded; state-funded primary and secondary schools.
Status
The CBILS is available through the British Business Bank's 40+ accredited lenders, which are listed on the British Business Bank website (www.british-business-bank.co.uk). The British Business Bank is a Government-owned, independently-run development bank.
In the first instance, businesses should approach their existing lender. They may also consider approaching other lenders if they are unable to access the finance they need.
Decision-making on eligibility is fully delegated to the 40+ accredited CBILS lenders. These lenders range from high street banks, to challenger banks, asset-based lenders and smaller specialist local lenders.
The Coronavirus Large Business Interruption Loan Scheme (CLBILS)
Background
The CLBILS was launched on 20 April 2020 to address the gap between the CBILS for SMEs and the CCFF for large, investment-grade businesses. The scheme can provide facilities of up to £50 million (depending on turnover) for businesses across the UK which are experiencing lost or deferred revenues, leading to disruptions to their cash flow. Like the CBILS, the scheme supports a wide range of business finance products, including term loans, overdrafts, invoice finance and asset finance. The scheme provides a lender with a Government-backed guarantee for the loan repayments. A borrower always remains fully liable for the debt.
Key features
- Up to £25 million or £50 million facility: Facility amounts are subject to turnover thresholds with a facility of up to £25 million for businesses with turnover from £45 million to £250 million and up to £50 million for businesses with turnover in excess of £250 million.
- 80% guarantee: The scheme provides the lender with a Government-backed, 80% guarantee against the outstanding facility balance (including interest and fees).
- Interest and fees: Unlike with the CBILS, the Government will not make a "Business Interruption Payment" to cover the first 12 months of interest payments and any lender-levied fees. However, the 80% guarantee will extend to interest and fees as well as the principal of the loan.
- Finance terms: Finance terms are up to three years.
- Security: The lender will follow its normal credit approval policy when assessing security. If the lender can offer finance on normal commercial terms without the need to make use of the scheme, it will do so.
- Personal guarantees: Personal guarantees are prohibited for facilities under £250,000. A personal guarantee may still be required at the lender's discretion for facilities above £250,000 but recoveries under these must be capped at a maximum of 20% of losses after all recoveries have been applied.
Eligibility criteria
To be eligible for a facility under the CLBILS, a business must:
- Be UK-based in its business activity, with annual turnover of in excess of £45 million.
- Have a borrowing proposal which, were it not for the current pandemic, would be considered viable by the lender, and for which the lender believes the provision of finance will enable the business to trade out of any short-to-medium term difficulty.
- Self-certify that it has been adversely impacted by COVID-19.
Exclusions include:
- The following trades and organisations are not eligible to apply: banks, building societies, insurers and reinsurers (insurance brokers are eligible); public sector organisations as classified by the Office of National Statistics; further education establishments, if they are grant-funded; state-funded primary and secondary schools.
- Businesses which have taken up the CCFF (see below).
Status
The CLBILS is available through certain of the British Business Bank's 40+ accredited lenders. Not all accredited lenders under the CBILS are able to provide the CLBILS. The current CLBILS accredited lenders are listed on the British Business Bank website (www.british-business-bank.co.uk).
In the first instance, businesses should approach their existing lender. They may also consider approaching other lenders if they are unable to access the finance they need.
Decision-making on eligibility is fully delegated to the accredited CLBILS lenders. These lenders currently consist of large banks.
The Coronavirus Future Fund
Background
The Future Fund was announced on 20 April 2020 following the initial package of measures which included the CBILS and the CCFF.
Pursuant to the scheme the Government will provide convertible loans to innovative companies to match fund-raising from third party, private investors.
These convertible loans may be a suitable option for businesses that rely on equity investment and are unable to access CBILS or CLBILS.
The scheme will be delivered in partnership with the British Business Bank
Key features – general
- Convertible loan of up to £5 million: Unsecured Government convertible loans from £125,000 to £5 million to match investment by third party, private investors.
- Up to 50% of total bridge funding: The amount of the Government convertible loan provided will not exceed 50% of the aggregate total bridge funding received by a business. There is no limit on the amount of the private matched funding received by a business.
- Use of proceeds: Proceeds must only be used for working capital purposes and must not be used to repay any borrowings, pay dividends, pay bonuses or, in respect of the Government loan, any advisory or placement fees or bonuses to external advisers.
- Interest rate: Minimum interest rate of 8% per annum (non-compounding) with interest due at maturity or, if a higher rate is agreed with matched investors, that higher rate.
- Finance terms: Maximum term of 36 months for the maturity of the loan.
- Decision-making: The Government will have "limited corporate governance rights" during the term of the loan and as a shareholder holder following the equity conversion of the loan.
- Conversion: A 20% discount will apply on conversion.
- Further details regarding the expected terms of the convertible notes can be found here.
Eligibility criteria
To be eligible for funding through the Future Fund, a business must:
- Be an unlisted UK-registered company and have a substantive economic presence in the UK.
- Be able to attract at least equal matched funding from third party private investors.
- Have raised at least £250,000 in aggregate from private third party investors in previous funding rounds in the last five years.
- If part of a corporate group, only the ultimate parent company is eligible to receive the loan.
Exclusions applicable to the scheme are yet to be published. It is unclear whether a company can be eligible for funding through the Future Fund in combination with either the CBILS or CLBILS although current published guidance suggests the Future Fund may only be an alternative to the CBILS or CLBILS.
Status
The Future Fund is due to accept applications in May 2020 and will initially remain open until September 2020. Full details and eligibility criteria of the scheme are due to be published in the coming weeks.
The Covid Corporate Financing Facility (CCFF)
The CCFF is a joint HM Treasury and Bank of England lending facility. It is designed to support liquidity among large, investment-grade firms, helping them to bridge coronavirus disruption to their cash flows through the purchase of short-term, unsecured debt in the form of sterling-denominated commercial paper.
As the CCFF is only available to companies with a short- or long-term rating of investment grade (or equivalent) as at 1 March 2020 (or unrated companies of an equivalent financial standing), the CCFF would not be available to the vast majority of private equity owned businesses.
Footnote
1. News reports on 24 April 2020 have suggested that HM Treasury is considering offering 100% guarantees on loans of up to £25,000, at the lower end of the available CBILS facility. Further detail and clarification are expected shortly.
Originally published 5 May, 2020
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