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Accessing funding for your business

If you are unable to generate cash from your existing business, then being able to quickly access funding is vital.

The UK Government has recognised these urgent requirements and on Friday 20 March Chancellor Rishi Sunak announced a number of measures to support businesses by providing them with access to finance through high-street banks. Changes to the schemes were announced on Thursday 2 April in recognition of the low numbers of businesses eligible to access funds in the initial period.

The type of support available depends on the nature and size of the affected business. These can be broadly split between the following two categories:

  • Category one: Small and medium-sized enterprises (SMEs)
  • Category two: Larger businesses with turnover over £45m

We explore each of these in greater detail below:

Category one: Small and medium-sized enterprises (SMEs)

SMEs may be eligible for the new Coronavirus Business Interruption Loan Scheme (CBILS). Set to run for an initial period of six months, this Scheme is designed to support smaller businesses who are experiencing a loss of revenue and cashflow disruption due to the Coronavirus.

The expanded Scheme will be operational from Monday 6 April and is available via British Business Bank’s accredited lenders. In the first instance, businesses should approach their existing bank. CBILS will support a wide range of business finance products, including term loans, overdrafts, invoice finance and asset finance. The changes to the scheme announced on 2 April mean that companies which weren’t previously eligible because they met the requirements for standard commercial funding can now apply.

Key features of the facilities are as follows:

  • The maximum value of a facility provided under the Scheme will be £5m with repayment terms of up to six years for term loans and asset finance facilities. For overdrafts and invoice finance facilities, terms will be up to three years.
  • The Scheme provides the lender with a Government-backed, partial guarantee (80%) against the outstanding facility balance, subject to an overall cap per lender.
  • The Government will make a Business Interruption Payment to cover the first 12 months of interest payments and any lender fees, so businesses will have no upfront costs and lower initial repayments.
  • The borrower always remains 100% liable for the debt.
  • No arrangement fees
  • No security fees
  • Lenders will not take personal guarantees of any form for facilities below £250,000. For facilities above £250,000, personal guarantees may still be required, but will exclude the Principal Private Residence (PPR), and recoveries under any personal guarantee will be capped at a maximum of 20% of the outstanding balance of the CBILS facility.

Eligibility criteria for the CBILS:

  • The Scheme is open to UK-based SMEs with annual turnover of up to £45m wishing to borrow up to £5m. This £45m limit applies across a group of entities and refers to the 12-month period prior to making the application.
  • The business will need to submit a borrowing proposal which, were it not for the current pandemic, would be considered viable by the lender. The business will need to satisfy the lender that any finance provided will enable the business to trade out of any short-to-medium term difficulty.
  • The business must generate more than 50% of its turnover from trading activity and any funds from the CBILS-backed facility should be used to support primarily trading in the UK.
  • The business will need to self-certify that it has been affected adversely by the Coronavirus.
  • Almost all business sectors will be eligible for the Scheme (excluding banks, building societies, insurers and reinsurers and the public sector, including state funded primary and secondary schools). In addition, fishery, aquaculture and agriculture businesses may not qualify for the full interest and fee payment.
  • According to the British Business Bank’s published information, there are to be no restrictions to access the Scheme if you have previously received de minimus state aid.
  • CBILS will support a wide range of business finance products, including term loans, overdrafts, invoice finance and asset finance.
CBILS will support a wide range of business finance products, including term loans, overdrafts, invoice finance and asset finance.

Category two: Larger businesses with turnover over £45m

There are now two schemes which may assist larger businesses with turnover over £45m.

1. Coronavirus Large Business Interruption Loan Scheme

A new Coronavirus Large Business Interruption Loan Scheme (CLBILS) was announced on 2 April 2020.

This scheme, like the CBILS scheme for smaller businesses, will provide the lender with a Government-backed, partial guarantee (80%) against the outstanding facility balance.

Under the CLIBLS scheme, loans will be available up to £25 million to businesses with an annual turnover of between £45 million and £500 million. This will give banks the confidence to lend to more businesses which are impacted by Coronavirus but which they would not lend to without CLBILS.

Loans backed by a guarantee under CLBILS will be offered at commercial rates of interest and further details of the scheme will be announced later this month.

2. COVID-19 Corporate Financing Facility

The COVID-19 Corporate Financing Facility (CCFF) Scheme was announced on 17 March 2020. This facility is aimed at helping larger, financially sound, companies that would usually seek market-based finance for their working capital and other short-term needs but are unable to do so due to disruption caused by the Coronavirus.

The CCFF provides funding to businesses by purchasing commercial paper (bonds) of up to one-year maturity, issued by firms making a material contribution to the UK economy.

Eligible companies will have previously had a short- or long-term rating of investment grade, or financial strength equivalent to an investment grade rating.

CCFF terms will be comparable to those prevailing in markets in the period before the Coronavirus economic impact took hold.

The CCFF will operate for at least 12 months and for as long as steps are needed to relieve cash-flow pressures.

The Scheme will be open to firms that can demonstrate they were in sound financial health prior to the impact.

The facility will look through temporary impacts on a business’ balance sheet / cash flows by using their credit rating prior to the COVID-19 disruption.

Further details have been published by the Bank of England.

Would you like to know more?

If you would like to discuss any of the above guidance or have other queries about how you can make the right decisions for the future of your business and your income, please contact your usual Blick Rothenberg contact or one of the partners to the right.

You can also visit our Coronavirus – Practical Guidance for businesses today Hub for our latest updates and insights.