Coronavirus Business Interruption Loan Scheme
This article discusses details of the UK Government’s Coronavirus Business Interruption Loan Scheme and how it will operate.
On 11 March 2020, the UK Chancellor announced a Coronavirus Business Interruption Loan Scheme (CBILS) to provide support to UK businesses. The British Business Bank (BBB) has published further details of what it is and how it will operate. The purpose of this note is to summarise the key details of the CBILS.
What is it?
The aim of the CBILS is to support the continued provision of finance to UK businesses during the COVID-19 outbreak. It will be available to support loans and other forms of finance including term, overdraft, invoice finance and asset finance facilities. The maximum amount of any facility provided under the CBILS will be £5m.
How will it operate?
The CBILS will be operated by the BBB through participating finance providers. Details of the participating providers and the finance they provide are available here. These lenders range from high-street banks, to challenger banks, asset-based lenders and smaller specialist local lenders.
Essentially it will operate to provide a government backed guarantee to the finance provider of repayment of 80% of the finance provided (subject to a per lender cap on claims). It will not relieve the borrower from its obligation to repay the finance.
The guarantee will also pay the first 12 months’ interest and fees so that the finance is effectively interest and fee-free to the borrower for the first 12 months. Fishery, aquaculture and agriculture businesses may not qualify for full interest and fee free payments.
There will be no fee or charge to the borrower for the guarantee. The finance provider will pay a fee to access the scheme.
The term of any finance provided will be for periods from three months to six years for term loans and asset finance and up to three years for revolving facilities and invoice financing.
When will CBILS be available?
It launched on 23 March 2020 and is available now.
Who will be eligible?
To be eligible, borrowers must meet certain eligibility criteria. Borrowers must:
be UK-based with a turnover of no more than £45m per annum;
operate within an eligible industry sector (a limited number of industry sectors, for example banks, insurers, the public sector and certain trade and religious organisations, are not eligible for support or are subject to limitations because of EU State Aid Rules); and
be able to demonstrate a sound borrowing proposal that, were it not for the COVID-19 outbreak, would be considered viable, and where the finance under the scheme would allow the business to trade out of any short-to-medium term difficulty; and
for financing over £250,000, have insufficient security to meet the lender’s usual lending requirements. (Unsecured loans up to £250,000 may be available at the discretion of the lender).
Banks, building societies, insurers and reinsurers (but not insurance brokers) will not be eligible and nor will the public sector including state funded primary and secondary schools, employer, professional, religious or political membership organisations or trade unions.
How long will CBILS be available?
The scheme will initially be available for six months but the guarantee of the principal will remain in place for the life of the guaranteed transaction.
How can UK businesses apply for the finance?
Businesses should apply to one of the 40 or more participating finance providers rather than BBB.
Given there is likely to be a big demand for facilities once the scheme goes live, BBB advise that businesses should:
consider applying via the lender’s website in the first instance as telephone lines are likely to be busy and branches may currently be shut to enable social distancing; and
consider the urgency of their need – it is possible that some businesses may be looking for regular longer-term finance rather than ‘emergency’ finance, and there may other businesses with a more urgent need to speak with a lender.
If the accredited lender can offer finance on normal commercial terms without the need to make use of the scheme, it is expected that they will do so.
Where can I find out more information?
The BBB have published a frequently asked questions document for borrowers which is available here.
I am interested in becoming an accredited finance provider. How do I do this?
Further information on becoming an accredited finance provider under CBILS is available on the BBB website here.
For further information please contact James Bresslaw or David Toole or your usual contact at Simmons & Simmons LLP.
See our Coronavirus (COVID-19) feature for more information generally on the possible legal implications of COVID-19.
