14th April 2020
Coronavirus: government grant and loan schemes
Coronavirus Business Interruption Loan Scheme (CBILS)
This has been launched specifically for SMEs impacted by the pandemic and will be administered by the British Business Bank. Under the scheme the government agrees to guarantee up to 80% of a loan to a lender without charge. The loan can be up to a maximum of £5m and, for most businesses, the government will pay the initial loan charge and interest due on the loan for the first 12 months. Loans supported in this way include overdrafts, term loans, asset finance and invoice finance.
There are a number of eligibility criteria including that the business must have turnover of no more than £45m and it must be able to demonstrate it has a sound borrowing proposal. Certain businesses are excluded including insurers, membership organisations and public sector bodies. The scheme went live on Monday 23 March and was expanded to include smaller businesses on Monday 6 April. CBILS will last for an initial period of 6 months on repayment terms of up to 6 years.
The expanded scope now allows smaller businesses to take advantage of the CBILS who were previously ineligible and prevents banks from asking for personal guarantees for facilities under £250,000. Banks can still request personal guarantees for facilities that exceed £250,000 but recoveries under these are limited to a maximum of 20% of the outstanding balance of the CBILS facility, i.e. that proportion of the total loan which is not guaranteed by the government. Additionally, measures have been taken to prevent a Principle Private Residence from being taken as security to support a personal guarantee for a facility.
In order to take advantage of CBILS, a business will need to approach an accredited lender with a funding proposal that would normally be considered viable by a lender were it not for the pandemic and self-certify that it has been adversely affected by the pandemic. The lender may opt to provide financing on normal commercial terms without the need to use this scheme. For facilities under £30,000, there are currently automated procedures and an information portal that are streamlining the application process.
It is important to note that the guarantee and payments due from the government under CBILS is payable to the lender and not the business. The business remains wholly liable to the lender for repayment of the loan and interest due after a year. This is a means to access finance which would not otherwise be available and is not a hand-out by the government. It is also important to read the small print. For example, not all businesses eligible for CBILS are also entitled to have the interest paid for the first year. For more information please refer to the British Business Bank guidance.
Covid Corporate Financing Facilities
For more substantial businesses, financing will be provided by the Bank of England through the purchase of commercial paper. This is designed to help firms making a material contribution to the UK economy and who would not otherwise be able to find financing because of the current conditions.
The arrangement will last for a year and notice of six months’ will be given prior to the withdrawal of the facility. It is open to those who would, but for the current situation, have formal investment grade credit rating. How the ‘significant contribution’ is assessed will depend on a number of factors including whether the business is a significant employer in the UK and whether it generates significant revenue in the UK.Grant Funding Schemes
There are currently two schemes in operation. One is the Small Business Grant Fund and the other is the Retail, Hospitality and Leisure Grant Fund. In both cases the government will reimburse Local Authorities who provide grants to eligible businesses.
Under the Small Business Grant Fund, if you currently claim Small Business Rates Relief or Rural Rates Relief then you will be eligible for a one-off government grant of up to £10,000. Under the Retail, Hospitality and Leisure Grant Fund, businesses in the retail, hospitality and leisure sectors with a rateable value of less than £15,000 will receive a grant of up to £10,000 and those with a rateable value of between £15,000 and £51,000 will receive a grant of up to £25,000.
There are some exclusions for businesses where property is occupied for personal use such as private stables and moorings.
With all of these various loans and grants the government is seeking to support large and small businesses who are being impacted by the Coronavirus pandemic. Businesses should review what is on offer and assess whether they meet the criteria. Reading the small print will be vital to understanding which of these support measures will most suit your business.
For more information on any of the items raised in this article please contact Emma Shipp, Head of Business Services on 020 7400 5022 or click here to email Emma or Thomas Leach.