Summary of UK Government Funding Assistance in wake of COVID-19
We are now in our ninth week of official lockdown following the outbreak of Covid-19 in the UK and we have been provided with situation and guidance updates from the UK government almost by the minute. At times, it has been hard to keep-up with the information being provided which has certainly been the case in respect of the government’s financial support measures during the crisis. As most government backed schemes have now largely taken shape, we thought now may be a good time to bring together the funding options that are available to UK businesses along with a brief summary of each option available.
The Coronavirus Business Interruption Loan Scheme (“CBILS”)
The CBILS has been designed as a temporary scheme for SMEs and is being delivered by the British Business Bank (“BBB”) via 40+ accredited lenders (including high-street banks, challenger banks, asset-based lenders and smaller specialist local lenders). Here are a few key points on the CBILS:
- it aims to support businesses access bank lending and overdrafts with an annual turnover of £45 million or less;
- a lender can provide up to £5 million in the form of term loans, overdrafts, invoice finance and asset finance to a borrower;
- the government will cover the first 12 months of interest and bank fees, and will provide a lender with a guarantee for 80% of the loan; and
- the BBB have made very clear the borrower will remain fully liable for the debt.
In response to pressure from the business community, the CBILS has been modified and expanded, by reducing or eliminating certain lending criteria. For example, insufficient security is no longer a condition to access the scheme and personal guarantees are not taken for facilities under £250,000. As of 19 May 2020, lenders have approved over £22 billion under the CBILS.
For more information about the CBILS, please see the BBB’s website here.
The Coronavirus Large Business Interruption Loan Scheme (“CLBILS”)
Similar to the CBILS above, the CLBILS is aimed at medium to larger sized businesses with an annual turnover of £45 million or more and is delivered by BBB via its accredited lenders. Here are a few key points on the CLBILS:
- businesses with a turnover of more than £45 million per year can apply for up to £25 million of finance;
- businesses with a turnover of more than £250 million can apply for up to £50 million of finance;
- the government will also guarantee 80% of loans provided under the CLBILS; and
- facilities backed by a guarantee under the CLBILS are offered at commercial rates of interest.
From 26 May 2020, the CLBILS will be extended so that businesses can borrower up to 25% of turnover up to a maximum of £200 million with the government continuing to provide a guarantee of 80% of the debt. Businesses borrowing more than £50 million under the CLBILS can expect to be subject to restrictions on dividend payments, share buy-backs and senior pay/bonuses throughout the duration of the loan.
For more information about the CLBILS, please see the BBB’s website here.
The Bounce Bank Loan Scheme (“BBLS”)
The BBLS was introduced for micro and small businesses on 4 May 2020 and is designed to enable businesses to access finance more quickly during the Covid-19 outbreak. Here are a few of the key features of the BBLS:
- businesses are able to borrow between £2,000 and £50,000 from accredited lenders;
- the government provides lenders with a 100% guarantee for approved BBLS loans and will pay any fees and interest for the first 12 months akin to the CBILS above;
- in addition, no repayments will be due from borrowers during that 12 month period either; and
- after the initial 12 month interest free period, a flat rate of 2.5% interest will be charged on all loans under the BBLS.
It has also been confirmed that a business that has already taken out a loan under the CBILS of £50,000 or less can now switch that loan to the BBLS until 4 November 2020.
For more information about the BBLS, please see the BBB’s website here.
Covid Corporate Financing Facility (“CCFF”)
The CCFF is delivered by HM Treasury and the Bank of England (“BoE”) and provides funding to some of the UK’s largest corporate businesses by purchasing commercial paper of up to one-year maturity. At a summary level, to be eligible for the scheme, applicants currently need to:
- Make a material UK contribution;
- Be investment grade rated (or equivalent) as at 1 March 2020;
- Not be PRA or FCA-regulated; and
- Not be a public undertaking.
The BoE has said it will start naming the companies that use the CCFF in a bid to increase transparency about which firms are being bailed out from 4 June 2020. Up until now, the BoE has not named the companies but firms such as easyJet have publicly said they have accessed the scheme.
Full information and guidance on the CCFF can be found on the Bank of England’s website here.
UK Export Finance (“UKEF”)
Exports from the UK to our primary trading markets totalled £499 billion last year, accounting for 74% of all international sales from the UK. Financial support may be available to UK exporters under the government's general business support measures via UKEF (the government’s export credit agency). UKEF may be able to:
- help exporters with cashflow constraints when fulfilling orders, by guaranteeing bank loans, through its Export Working Capital Scheme;
- enable overseas buyers to continue buying goods and services, by providing them with support finance through the Direct Lending Facility scheme; and
- offer insurance that can cover up to 95% of the value of an export contract following non-payment by overseas buyers, through its export insurance scheme.
Further information and guidance on UKEF can be found on the Government’s website here.
The Future Fund (“FF”)
The FF is a financial package to be delivered by the BBB and is designed to help support businesses driving innovation in the UK which launched on 20 May 2020. Here are a few of the key features of the FF:
- the package comprises a £500 million convertible loan scheme and £750 million of grants and loans for SMEs focused on research and development;
- it aims to provide UK companies incorporated on or before 31 December 2019 with between £125,000 and £5 million from the government (which is to be matched by private investors);
- there are a number of eligibility requirements to meet – for example, a business must be an unlisted UK registered company that has previously raised at least £250,000 in equity investment from third party investors in the last five years, and the company must have lined up at least £125,000 of matched third party convertible loan funding before making the application.
The government is committing an initial £250 million in funding towards the scheme, which will initially be open until the end of September. The £750 million of targeted support for SMEs will be available through the national innovation agency, Innovate UK's grants and loan scheme. The initial disappointment with the £250 million convertible loan scheme is that the matched investment cannot be met through SEIS or EIS share subscriptions. This, along with other criteria conditions, may mean that the scheme will be of limited use to smaller/early stage start-ups.
For more information on the FF, please see the BBB’s website here.
Lending to Date
As at 19 May 2020, over £32 billion in loans and guarantees have been advanced to support businesses with cashflow during the crisis. This includes:
- 268,000 loans under the BBLS worth £8.3 billion
- 36,000 loans under the CBILS worth over £6 billion
- £359 million through the CLBILS
- £18.7 billion through the CCFF
GET IN TOUCH
If you’d like to find out more about this update, please get in touch with Sean Halliwell.
Our Banking & Finance team advise lenders and borrowers on a range of deals involving debt of up to £400 million. We work with corporate borrowers, investors, banks, building societies and a number of private operators who focus on a range of niche sectors.
All information in this update is accurate at the time of writing. It is meant for general information only and is not legal advice.