Treasury announces measures to assist companies falling through the cracks: the Coronavirus Large Business Interruption Loan Scheme

While the UK Government, for the most part, has been praised for taking quick, decisive action to limit the impact of the COVID 19 economic shock for consumers and some UK companies, the measures announced to date excluded a significant proportion of UK businesses.  Until now, many UK companies had fallen through the cracks; too small to be eligible for support via the Covid Corporate Financing Facility, which is available to investment grade companies, but too big to apply for a loan under the Coronavirus Business Interruption Scheme, which is limited to SMEs with an annual turnover of up to £45 million.  Last night, HM Treasury announced a new scheme to address this funding gap, called the Coronavirus Large Business Interruption Loan Scheme (the "CLBILS"), which will provide support to previously omitted UK businesses. Full details of the scheme will not be released until later this month, but in this alert, we provide a high level summary of the CLBILS, as well as examining changes to the existing scheme for SMEs that were also announced by the Chancellor yesterday.

Coronavirus Large Business Interruption Loan Scheme

The CLBIS will seem very familiar to readers of our earlier alerts and, in many respects, looks to be a carbon copy of the SME scheme that launched on 23 March.  The CLBIS is a guarantee scheme, backed by the British Business Bank, which will facilitate the provision of loans of up to £25 million via commercial lenders to businesses that have been impacted by the COVID 19 outbreak.  Lenders that provide financing to companies via the scheme will benefit from a government guarantee of 80% on individual loans, giving them the confidence to lend to viable companies that would otherwise be unable to access the credit they need to weather the current economic climate.

Which companies are eligible for support through the CLBILS?

The CLBILS will be available to companies that:

• are UK based in their business activity;
• have an annual turnover between £45 million and £500 million;
• are unable to secure standard commercial financing; and
• have a borrowing proposal that the lender:
  • would consider feasible were it not for the coronavirus pandemic; and
  • believes will enable the company to trade out of any short  to medium term distress. 

Business in all sectors are eligible to apply for CBILS with the exception of banks and building societies, insurers and reinsurers (but not insurance brokers), public sector organisations, trade unions and employer, professional, religious or political membership organisations.

What sort of funding will be available and how do companies access it?

Although full details are not yet available, the preliminary details suggest that the scheme will give access to a range of finance products including short term loans, overdrafts, invoice financing and asset finance facilities. It is expected that the facilities will be offered at commercial rates of interest.  Companies interested in participating in the scheme will need to contact one of the participating commercial lenders, details of which will be published on the British Business Bank website once the scheme is finalised later this month.

Amendments to the existing SME scheme

In his statement, the Chancellor provided an overview of the take up that the two main government financing initiatives have had since they were launched on 23 March. Under the Coronavirus Business Interruption Loan Scheme, more than £90 million of loans have been approved for approximately 1000 SMEs and the Covid Corporate Financing Facility has delivered close to £1.9 billion of support to investment grade firms.  Rishi Sunak also addressed some concerns that had arisen during the first week of operation of the scheme available to SMEs, announcing measures to make it more widely available and removing some of the scheme's perceived hurdles to access.

The scheme for SMEs, called the Coronavirus Business Interruption Loan Scheme (the "CBILS"), was originally limited to SMEs unable to secure regular commercial financing.  This meant that, in instances where the accredited lender was willing to offer regular commercial financing, the SME would either be tied to the terms of that financing and therefore excluded from the benefits of CIBLS (such as the government payment to cover lender levied fees and the first 12 months' interest repayments), or the company would have to approach a different lender in the hope that they would be rejected for financing on normal commercial terms.  The government has now extended the availability of CBILS, making it available to all viable SMEs affected by COVID 19, regardless of whether they could secure commercial financing outside of the scheme.

Another criticism the scheme had received related to the fact that some accredited lenders had been requesting personal guarantees before accepting borrowers to the scheme and the Chancellor has now addressed this issue.  For facilities below £250,000 lenders are not permitted to take a personal guarantee.  For larger facilities, personal guarantees may still be required, at a lender's discretion, but recoveries are capped at a maximum of 20% of the outstanding balance of the CBILS facility after the proceeds of business assets have been applied and principal private residences cannot be taken as security under the scheme.  These changes will apply retroactively to any financing arrangements that have already been put into place under the scheme as well as all new facilities.

If you have any questions on any of the topics raised in this alert then you should reach out to your usual White & Case contact.

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