We previously provided an overview of the UK Government support schemes in respect of COVID-19. The package of measures is evolving rapidly.

Here we provide an update on:

  • Changes to the Coronavirus Business Interruption Loan Scheme (“CBILS”)
  • A new Coronavirus Large Business Interruption Loan Scheme (“CLBILS”).

Changes to the Coronavirus Business Interruption Loan Scheme (“CBILS”)

Background

CBILS “went live” on 23 March 2020. It provides facilities of up to £5 million for smaller businesses across the UK who 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.

Originally, at the discretion of the lender, the scheme was able be used for unsecured lending for facilities of £250,000 and under. For facilities above £250,000, the lender was required to establish a lack or absence of security prior to businesses using CBILS. If the lender could offer finance on normal commercial terms without the need to make use of the scheme, they would do so. Further, to be eligible for CBILS, the borrower was required to have an annual turnover of no more than £45m.

Response to criticism of CBILS

A key criticism of CBILS was that businesses were bring pressurised into loans on unfavourable terms in order to satisfy the guarantee criteria. The government is now extending loan guarantees to all viable SMEs and not just businesses who couldn’t access a loan on commercial terms.

The Chancellor has also stopped banks from asking for personal guarantees on loans of £250,000 or less. Personal guarantees will be capped at 20% of the outstanding loan balance for businesses borrowing more than £250,000 subject to a CBILS guarantee. Further, a Principal Private Residence (PPR) cannot be taken as security to support a personal guarantee or as security for a CBILS-backed facility

Coronavirus Large Business Interruption Loan Scheme (“CLBILS”)

A further criticism of CBILS and the separate Covid Corporate Financing Facility (CCFF) was that they left a “squeezed middle” of companies too large to benefit from CBILS but not able to access support under CCFF.

The new CLBILS will provide a government guarantee of 80% to enable banks to make loans of up to £25m to firms with an annual turnover of between £45m and £500m. Facilities backed by a guarantee under CLBILS will be offered at commercial rates of interest.

The new scheme will launch later in April and, like its “little sibling” CBILS, will support a wide range of businesses to access finance products including short term loans, overdrafts, invoice finance and asset finance.

Eligibility

To be eligible for CLBILS, a business must:

  • Be UK-based in its business activity
  • Have an annual turnover between £45 million and £500 million
  • Be unable to secure regular commercial financing
  • Have a borrowing proposal which the lender:
    • would consider viable, were it not for the COVID-19 pandemic
    • believes will enable you to trade out of any short-term to medium-term difficulty.

Businesses from any sector can apply, except

  • Banks and building societies
  • Insurers and reinsurers (but not insurance brokers)
  • Public-sector organisations, including state-funded primary and secondary schools

Further detail on eligibility will be confirmed later this month.

For additional information please contact the authors.

***

If you wish to receive periodic updates on this or other topics related to the pandemic, you can be added to our COVID-19 “Special Interest” mailing list by subscribing here. For any other legal questions related to this pandemic, please contact the Firm’s COVID-19 Core Response Team at FW-SIG-COVID-19-Core-Response-Team@mayerbrown.com.