UK: Government introduces series of loan schemes: Key features for borrowers

Start date May 4, 2020

Start date March 23, 2020

Start date April 20, 2020

Smaller UK-based businesses with a turnover of less than £45 million

CBILS is open to:

• sole traders
• freelancers
• bodies corporate
• limited partnerships
• limited liability partnerships, and
• any other legal entity carrying out business activity in the UK with: (i) an annual turnover up to £45 million, and (ii) its business activity is operating through a business account operating in any sector (other than a restricted sector –see “Restricted Sector” below) 

Larger UK businesses with a turnover of more than £45 million

CLBILS is open to:

• sole traders
• freelancers
• bodies corporate
• limited partnerships
• limited liability partnerships, and
• any other legal entity carrying out business activity in the UK with: (i) an annual turnover of more than £45 million, and (ii) its business activity is operating through a business account operating in any sector (other than a restricted sector –see “Restricted Sector” below) 

Term loan minimum £2,000 and up to the 25% of turnover

(a) For term loans and overdrafts minimum will be £50,001

(b) For asset or invoice finance facilities only lenders will still be able to provide finance at less than £50,001

The maximum facility amount is £5 million

(a) Up to £25 million for borrowers with a group turnover of up to £250 million; or

(b) up to initially £50 million – increased May 26 to up to £200 million for borrowers with a group turnover greater than £250 million

The BBLS scheme will be available through the British Business Bank’s accredited lenders (see “Accredited Lenders” below)

The CBILS scheme will be available through the British Business Bank’s accredited lenders (see “Accredited Lenders” below)

The CLBILS scheme will be available through the British Business Bank’s accredited lenders (see “Accredited Lenders” below)

To be eligible for a facility under CBILS, your business must:

• be UK-based in its business activity
• have an annual turnover of no more than £45 million
• have a borrowing proposal which the lender would consider viable, were it not for the current pandemic
• not be a “business in difficulty” as of December 31, 2019 (if it was, then businesses in agriculture, aquaculture or fisheries may not qualify for the full amount; and the loan cannot be used for export-related activities (see below “What is a Business in Difficulty”)
• have more than 50% of its turnover from trading or commercial activities in the UK (i.e. from the sale of goods and services)

Note that exporting businesses are in principle eligible. The test is the location of economic activity rather than where sales are made

You must self-certify that your business has been adversely impacted by the coronavirus (COVID-19)

The facility will be used primarily to support trading in the UK

To be eligible for a facility under CLBILS, your business must:

• be UK-based in its business activity
• have an annual turnover of more than £45 million
• more than 50% of the businesses turnover must be generated from trading activity (i.e. from the sale of goods and services)

The borrower must be able to self-certify that it has been adversely impacted by the coronavirus (COVID-19) and must have a borrowing proposal which the Lender (a) considers viable but for the COVID-19 outbreak; and (b) believes will enable the borrower to trade out of any short to mid-term difficulties

You cannot apply if you are already claiming under:

• Coronavirus Business Interruption Loan Scheme (CBILS)
• Coronavirus Large Business Interruption Loan Scheme (CLBILS)
• COVID-19 Corporate Financing Facility (CCFF)

If you have already received a loan of up to £50,000 under one of these schemes you can transfer it into the Bounce Back Loan scheme. You have until November 4, 2020 to arrange this with your lender

If the business self-declares as not being a “business in difficulty” on December 31, 2019 (see “Eligibility Criteria” above), then any previous de minimis State aid does not impact a business’ eligibility for the Scheme

Any aid received under the Retail, Hospitality and Leisure Grant and any Business Interruption Payment received under the Coronavirus Business Interruption Loan Scheme will count towards their total State aid allowance under the Temporary Framework. Businesses are required to self-declare that, since March 19,  2019, they have not received more than £711,200 in State aid under the State Aid Temporary Framework (or £106,680 in the case of fisheries and aquaculture businesses, or £88,900 for agriculture businesses)

Any previous de minimis state aid does not impact your eligibility for CBILS and the lender does not need to take it into account

The eligibility criteria for CLBILS does not require Lenders to take into account the other forms of government support that businesses may be benefiting from e.g. the Coronavirus Job Retention Scheme, business rate reliefs or grants unrelated to the CBIL scheme

A business is considered in difficulty if it met any one of the following criteria on December 31, 2019:

• Individuals or companies that have entered into collective insolvency proceedings
• Limited companies which have accumulated losses greater than half of their share capital in their last annual accounts (this does not apply to SMEs* less than three years old)
• Partnerships, limited partnerships or unlimited liability companies which have accumulated losses greater than half of their capital in their latest annual accounts (this does not apply to SMEs less than three years old)
• Where the undertaking has received rescue aid and has not yet reimbursed the loan or terminated the guarantee, or has received restructuring aid and is still subject to a restructuring plan
• A company which is not an SME where, for each of the last two accounting years: (i) its book debt to equity ratio has been greater than 7.5; and ii) its EBITDA interest coverage ratio has been below 1.0

A business is considered in difficulty if it met any one of the following criteria on December 31, 2019:

• Businesses that have entered into collective insolvency proceedings or have fulfilled the criteria to be put into collective insolvency proceedings
• Limited companies which has accumulated losses which if deducted from the company’s reserves leads to a negative amount that exceeds half of the company’s subscribed share capital in their last annual accounts (this does not apply to SMEs* less than three years old)
• Partnerships, limited partnerships or unlimited liability companies which have accumulated losses greater than half of their capital in their latest annual accounts (this does not apply to SMEs less than three years old)
• Where the undertaking has received rescue aid and has not yet reimbursed the loan or terminated the guarantee, or has received restructuring aid and is still subject to a restructuring plan
• A company which is not an SME where, for each of the last two accounting years: (i) its book debt to equity ratio has been greater than 7.5; and ii) its EBITDA interest coverage ratio has been below 1.0

* SMEs are defined as a business with less than 250 employees and either (a) a turnover of less than £44.45 million or (b) a balance sheet of less than £38.22 million

These criteria do not apply to SMEs that, on December 31, 2019, had existed for less than three years. That means that certain fast-growth businesses may not be eligible for the scheme (unless they are less than three years old)

Yes - the proposed borrower’s short-to-medium term viable business proposition is assessed according to a Lender’s normal commercial lending criteria

The Lender may still lend under CBILS  even if the proposed borrower’s viability is uncertain if in the Lender’s reasonable opinion (a) the finance will help the proposed borrower trade-out of any short-to-medium term cash flow difficulty, and (b) if the facility is granted, the proposed borrower is not expected to go out of business in the short-to-medium term 

The loan must be for business purposes

Fixed term of six years

No principal repayments during the first 12 months

Term loans and asset finance facilities-up to six years

Overdrafts and invoice finance facilities – up to three years

No set-up fees payable by borrowers

First 12 months of interest payments covered by government 

Interest fixed at 2.5% p.a.

No fees for early repayment

Interest and fees are set by accredited lenders and will vary by lender

First 12 months of interest and Lender-levied fees covered by government

Borrower’s main home or primary personal vehicle cannot be taken as security

At the discretion of the Lender save in respect to personal guarantees (se “Personal Guarantees” below)

Unsecured facilities of up to £250,000

For facilities above £250,000, the Lender must establish that the borrower is unable to provide security before making a loan under the CBILS

Lenders are not permitted to take personal guarantees

No personal guarantees for any facilities below £250,000

No personal guarantees for any facilities below  £250,000

Under the terms of the CLBILS facility certain restrictive covenants must include:

• Dividends: Borrowers cannot make any dividend payments other than those that have already been declared
• Share buyback: Borrowers agree not to make any share buybacks
• Executive pay: Borrowers cannot pay any cash bonuses, or award any pay rises to senior management (including the board) except where they were a) declared before the CLBILS loan was taken out, b) is in keeping with similar payments made in the preceding 12 months, and c) does not have a material negative impact on the borrower’s ability to repay the loan 

Restricted Sectors

Banks and building societies

Insurers and reinsurers

Public sector organisations

State funded primary and secondary schools

Banks and building societies

Insurers and reinsurers

Public sector organisations

Banks and Building Societies

Insurers and reinsurers

Public sector organisations

State funded primary and secondary schools

The provisions of the Consumer Credit Act which require lenders to provide sole traders, small partnerships and unincorporated associations seeking finance up to £25,000 with information before a loan is granted, and to provide further information throughout the course of the agreement do not apply under the BBLS

However, lenders will still be required to provide relevant information to businesses and the collection of the BBLS  loans will be regulated, meaning that, should businesses encounter financial difficulty, lenders will have to comply with relevant regulations