Accessing funding for your business

The UK Government has recognised these urgent requirements and on 20 March Chancellor Rishi Sunak announced a number of measures to support businesses by providing them with access to finance through high-street banks.

Bounce Back Loans

The Bounce Back Loan Scheme launched on Monday 4 May through a network of accredited lenders. These loans are designed to support small and medium-sized businesses looking to borrow between £2,000 and £50,000. Further details of these loans including eligibility criteria and key features can be found in our separate article here.

If your business is larger, or you are looking to borrow more than £50,000, then there is other funding support available. 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 Coronavirus Business Interruption Loan Scheme (CBILS). Initially set to run for a period of six months, businesses now have until the end of November 2020 to apply for a CBILS loan which is designed to support smaller businesses who are experiencing a loss of revenue and cashflow disruption due to the Coronavirus.

The Scheme has been operational since 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.

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 ten 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 should not be classed as a ‘business in difficulty’ at the date of application if borrowing more than £30,000. A ‘business in difficulty’ is one that has:

– accumulated losses of more than half of its subscribed share capital for limited companies, or for unlimited liability companies its capital. (This does not apply to businesses which were less than three years old); or

– started, or had fulfilled the criteria to be put into, collective insolvency proceedings or

– previously received rescue aid that was yet to be reimbursed (or, in the case of a guarantee, terminated) or

– received restructuring aid, and was still under a restructuring plan or

– (where it does not meet the SME criteria) has fallen below solvency ratios for the previous two years.

• 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 minimis state aid (however see note below relating to potential interaction with Research and Development relief for small and medium-sized enterprises).
• 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

Applications for the Coronavirus Large Business Interruption Loan Scheme (CLBILS) opened in April and will remain open until 30 November 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. The borrower remains 100% liable for the debt.

Under the CLIBLS scheme, loans will be available as follows:

• up to £200 million to businesses with an annual turnover over £45 million.
• the amount borrowed should be a maximum of the higher of:
  • double the annual wage bill in respect of the United Kingdom business of the borrower for 2019;
  • 25% of the total turnover of the borrower’s UK business in 2019; or
  • with appropriate justification and based on self-certification of the borrower of its liquidity needs, an amount to cover the liquidity needs of the UK business for the 12 months following the granting of the relevant facility, or such other amount as is notified to the Lender by the Guarantor from time to time
• 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.
• Finance backed by a guarantee under CLBILS will be offered at commercial rates of interest. As the lenders will benefit from the reduced risk on their facility that results from the 80% government guarantee, as well as from the capital relief they may receive on CLBILS facilities the expectation is that the interest rate the lender can charge is reduced as a result of the CLBILS guarantee.
• Finance will be available in the form of term loans, invoice finance, asset finance and revolving credit facilities (including overdrafts) and for terms from three months up to three years.
• In line with the CBILS scheme, no personal guarantees are permitted for facilities under £250,000. For facilities of £250,000 and over, claims on personal guarantees cannot exceed 20% of losses after all other recoveries have been applied

In order to qualify for the CLBILS scheme the business should meet the following criteria:

• The business must be based in the UK and generate more than 50% of its turnover from trading activity.
• Funds from the CLBILS-backed facility should be used to support primarily trading in the UK.
• The business has an annual turnover of over £45 million
• The business must not be a “business in difficulty” at the application date
• The business can self-certify that your business has been adversely impacted by Coronavirus
• Your business has not received a facility under the Bank of England’s COVID-19 Corporate Financing Facility (CCFF) (see below)
• You must also have a borrowing proposal which the lender would consider viable, if not for the Coronavirus pandemic, and which will enable you to trade out of any short-term to medium-term difficulty.

Almost all business sectors will be eligible for the CLBIL 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 minimis state aid (however, see note below relating to potential interaction with Research and Development relief for small and medium-sized enterprises).

2. COVID-19 Corporate Financing Facility

The COVID-19 Corporate Financing Facility (CCFF) Scheme 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 as at 1 March 2020.

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

The CCFF close to new applications on 31 December 2020. Eligible issuers that are already signed up to the CCFF as at 31 December 2020 will continue to be able to issue new bonds up until 22 March 2021.

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.

CBILS and CLBILS interaction with Research and Development (R&D) Relief Schemes

The CBILS loans are made on a commercial basis, however the Government guarantee to the lender is considered a form of state aid to the borrower.

HMRC have now formally notified the European Commission of the CBIL Scheme as state aid, under the European Commission’s new Temporary Framework for COVID-19. As such CBILs will need to be taken into consideration when applying for other reliefs such as R&D relief.

Small and Medium Enterprise Research and Development Scheme

The SME scheme is also a notified state aid.

Under the SME scheme you are not permitted to claim any other notified aids in relation to the same R&D project as this will cause a breach.

Care must therefore be taken when applying for the CBILS as the intended purpose of the loan will impact the qualification of the R&D project for R&D Relief.

If you are, or intend to make R&D relief claims, please get in touch with your professional advisor before applying for either the CBIL or CLBIL Schemes.

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 insights and sign up here to receive important Practical Guidance updates delivered directly to your inbox.