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Update – Coronavirus Large Business Interruption Loan Scheme

On 19 May the Chancellor of the Exchequer, Rishi Sunak announced that the maximum loan size available through the Coronavirus Large Business Interruption Loan Scheme (CLBILS) has been increased from £50 million to £200 million for eligible businesses. This is to ensure large businesses which do not qualify for the Bank of England’s Covid Corporate Financing Facility have sufficient finance to meet cashflow needs during the ongoing pandemic.

The Scheme in its original form was launched on 20 April. Larger loans under the expanded Scheme are due to be available from 26 May. Under the Scheme, a list of accredited lenders (12 at the time of writing – available to view on the British Business Bank’s website will provide financial support to eligible businesses in the form of:

  • term loans;
  • revolving credit facilities (including overdrafts);
  • invoice finance; and
  • asset finance

To encourage accredited lenders to lend under the Scheme, the UK Government provides a partial guarantee of 80% against the outstanding balance of the loan after the lender has recovered as much as it can. For example, if the loan amount is £200 000 and the lender recovers £100 000, the UK Government will pay out £80 000 (80% of the unrecoverable £100 000 loan amount).

Key features of the CLBILS

Under the Scheme as expanded, the key features are as follows:

  • businesses with an annual turnover greater than £45 million and up to £250 million can borrow up to £25 million.
  • businesses with an annual turnover greater than £250 million can borrow 25% of their turnover up to a maximum amount of £200 million.
  • loan terms are for a minimum of 3 months and up to 3 years.
  • businesses are 100% responsible for repaying the loan and lenders are entitled to charge fees and interest.
  • unlike the Coronavirus Business Interruption Loan Scheme, the UK Government will not make a Business Interruption Payment to cover interest and any lender-levied fees in the first 12 months of any facility.
  • lenders will not take personal guarantees as security on any form of facility below £250 000. For facilities above £250 000, personal guarantees may be required but claims cannot exceed 20% of losses after all other recoveries have been applied.
  • the Scheme does not preclude accredited lenders and borrowers entering into loan agreements outside the Scheme e.g. where the Scheme offers no economic benefit over ordinary commercial lending.

Eligibility for the CLBILS

The Scheme is open to sole traders, freelancers, bodies corporate, limited partnerships, limited liability partnerships or any other legal entity whose business meets the below eligibility requirements and provided business activity is operated through a business account.

To be eligible to apply for the Scheme, your business must:

  • be UK-based in its business activity;
  • have an annual turnover of more than £45 million;
  • have a borrowing proposal which the accredited lender would consider viable, were it not for the current pandemic, and for which the lender believes the provision of finance will enable the business to trade out of any short-term to medium-term difficulty;
  • self-certify that it has been adversely impacted by the coronavirus pandemic; and
  • not have received a facility under the Bank of England’s COVID-19 Corporate Financing Facility (CCFF)

Businesses from any sector can apply except the following:

  • credit institutions (falling within the remit of the Bank Recovery and Resolution Directive), insurers and reinsurers (but not insurance brokers);
  • building societies;
  • public-sector bodies;
  • further-education establishments, if they are grant-funded; and
  • state-funded primary and secondary schools

Applying for the CLBILS

Applications are made online through an accredited lender’s website. It should be noted that not all accredited lenders will offer all the different types of finance available under the Scheme, so you will need to review each accredited lender and apply to those which offer the most suitable finance facility for you.

If your application if rejected by one accredited lender this does not prevent you from applying to one or more of the other accredited lenders.

As part of the application process you will need to provide certain evidence to the accredited lender that your business can afford to pay the loan amount. This is likely to include:

  • management accounts;
  • cash flow forecast;
  • a business plan;
  • historic accounts; and
  • details of assets

however, the exact requirements will vary between accredited lenders.

Restrictions

Businesses borrowing more than £50 million under the Scheme will be subject to the following restrictions:

  • dividends – borrowers cannot make any dividend payments other than those that have already been declared;
  • share buyback – borrowers must agree not to make any share buybacks; and
  • executive pay – borrowers cannot pay any cash bonuses, or award any pay rises to senior management (including the board) except where these were:
    • declared before the Scheme loan was taken out;
    • in keeping with similar payments made in the preceding 12 months; and
    • does not have a material negative impact on the borrower’s ability to repay the loan.

Full details of the updated Scheme are due to be published on 26 May.

Our Corporate and Commercial law teams in Bristol and London specialise in advising SMEs and large businesses. If you are looking for legal guidance on the Coronavirus Large Business Interruption Loan Scheme please contact:

Paul Hardman – 0117 906 9425 – paul.hardman@gregglatchams.com

Bridget Juckes – 0117 906 9260 – bridget.juckes@gregglatchams.com

Karen Davies – 0117 906 9238 – karen.davies@gregglatchams.com 

This guidance is correct as of 20 May 2020.

Please note that in relation to the UK Government’s response to the ongoing coronavirus pandemic our advice is based on the UK Government’s announcements about changes it intends to make to the law. The situation regarding the pandemic and the UK Government’s response to it is changing fast and in consequence the content of any new or changed law may differ from that anticipated.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.

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