Government debt finance schemes for UK businesses impacted by the COVID-19 pandemic

A brief update on the debt finance schemes introduced by the Government, which are available to businesses within the UK following the outbreak of COVID-19

24 April 2020

Updated on 25 September 2020.

Debt finance options for businesses affected by COVID-19

What financing assistance can businesses access to deal with COVID-19?

There are three main forms of government-backed financing, which are available to businesses to mitigate the economic effects of the COVID-19 outbreak:

  • a COVID Corporate Financing Facility (CCFF) provided by the Bank of England on behalf of HM Treasury
  • a loan from an accredited lender under the Coronavirus Business Interruption Loan Scheme (CBILS)
  • a loan from an accredited lender under the Coronavirus Large Business Interruption Loan Scheme (CLBILS) (launched Monday 20 April 2020).

The list of accredited lenders for the CBILS and CLBILS can be found here and here respectively.

CCFF

The CCFF is a lending facility aimed at investment grade borrowers by way of issuance of commercial paper, which will be purchased by The Bank of England.

In order to be eligible for the funding, the issuer must be an entity that: (i) offers a material contribution to the UK economy; and (ii) is of 'sound financial health' prior to the COVID-19 outbreak.

The minimum issue amount is £1 million and the maximum is £1 billion.

More detail can be found here.

CBILS and Bounce Back

The CBILS aims to allow accredited lenders to provide financial support to small businesses (those with a turnover not exceeding £45 million).

The accredited lender lends monies to the business, backed by a limited (80 per cent) government guarantee to cover principal amounts borrowed. The maximum amount that can be borrowed under the CBILS is £5 million.

Accredited lenders are able to provide term loans or asset finance for a term of up to six years and overdrafts or invoice finance for a term up to three years.

The borrower must have a borrowing proposal which the lender would consider viable were it not for the current pandemic and the directors will have to certify that the business has been adversely affected by COVID-19.

Further information about the broad eligibility criteria can be found here, as well as on individual lenders’ websites.

On Monday 27 April, HM Treasury has announced the launch of 'Bounce Back Loans'. Bounce Back Loans will aim to provide the smallest businesses with loans of between £2,000 and £50,000 that will be supported by a 100 per cent government guarantee. The scheme is set to go live on 4 May 2020 and promises to allow banks to lend more quickly than under the CBILS.

Any business can apply for the Bounce Back Loan and banks that have lent to the businesses under the CBILS scheme providing loans between £2,000 and £50,000 will automatically benefit from the 100 per cent government backed guarantee. Bounce Back Loans may also be a viable alternative for businesses that are ineligible for the CBILS. Further information on Bounce Back Loans can be found here.

CLBILS

Businesses that have a turnover in excess of £45 million may be able to take advantage of CLBILS. It has been introduced as a direct result of business consultation after it was recognised that the CCFF and CBILS produced a 'squeeze' on businesses with a turnover in excess of £45 million but not eligible to access the CCFF.

In the same way as the CBILS, the CLBILS allows accredited lenders to lend monies between £25 million to £200 million (the upper limit of £50 million will be increased to £200 million from 26 May 2020) to a business, backed by a limited (80 per cent) government guarantee to cover amounts borrowed (including principal, interest and outstanding fees).

The eligibility criteria differs for the CLBILS scheme (from the CBILS) in the following ways:

  • in due course, there should be ability to obtain committed revolving credit facilities
  • no interest payment holiday for initial 12 months
  • finance is available for up to three years only
  • the borrower must have an annual turnover of more than £45 million
  • the borrower must not have received a facility under the CCFF.

Further information about the broad eligibility criteria can be found here, as well as on individual lenders’ websites.

Applications for emergency finance or CBILS/ CLBILS finance

Depending on the type of finance sought, a borrower should approach either their relationship director (at a clearing bank if they have one), apply via the individual accredited lender’s website or consider enlisting the help of a corporate finance adviser to assist with identifying the most suitable type of finance arrangement for the business. In many cases, lenders can offer finance on normal commercial terms outside these schemes, which may be more flexible for a business.

The devil is in the detail of the individually negotiated guarantee arrangements between the accredited lenders and the British Business Bank. The lenders themselves are finding their way through these schemes and their credit teams are extremely busy dealing with applications.

It is inevitable that existing customers will be prioritised by lenders (some lenders will only deal with existing customers) and the assistance of corporate finance advisers to help expedite the process could be crucial for some borrowers.

Uncertainties of the schemes

The eligibility criteria appears to be more complex than the basic information posted on the British Business Bank’s website. The lender has to satisfy itself that it would have lent to the business but for the COVID-19 pandemic and therefore full business plans and financial information will need to be provided to the lender.

It has been clarified that both real estate businesses and private equity backed businesses are eligible for both guarantee schemes.

Future Fund

The Government announced on Monday 20 April 2020 that it will be launching a 'future fund' to provide assistance to businesses that drive innovation in the UK and have been unable to access the above funds.

See our separate briefing on the Future Fund here.

Government guidance on this scheme can be found here.

If you would like to discuss any of the options laid out in this article, please contact Rachael Ruane.

24 September 2020 Update

On 24 September, HM Treasury announced an extension to the deadline for applications under the Bounce Back Loans, CBILS, CLBILS and the Future Fund to 30 November (each one previously having a different end date) and the following measures known as ‘pay as you grow’ to give business greater flexibility for repayments:

  • Businesses that have borrowed under the CBILS and Bounce Back schemes now have the option to repay their loan over a maximum period of 10 years. This is extended from the previous 6 year deadline; and
  • Offering Bounce Back Loan borrowers the option to move temporarily to interest-only payments for a period of up to six months (an option which they can use up to three times) or to pause their repayments entirely for up to six months (an option they can use once and only after having made six payments).

Further information can be found here.

Key contact

Racheal Ruane

Rachael Ruane Partner

  • Corporate Banking
  • Real Estate Finance
  • Asset Finance and Asset Backed Lending

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