The Coronavirus Large Business Interruption Loan Scheme – Is your business eligible?

26th May, 2020 by Ian Ilersic

The Coronavirus Business Interruption Loan Scheme (CBILS) went live on 23 March with the aim of supporting businesses with an annual turnover of up to £45 million to access funding. If your business has a turnover of up to £45 million, see our separate article on CBILS here.

At the same time as CBILS was launched, the Covid Corporate Financing Facility (CCFF), was set up for large companies with investment grade credit ratings to issue commercial paper which the Bank of England will buy for up to 12 months.

This left a significant gap in support for businesses with a turnover over £45 million and without an investment grade credit rating.

Details of the Coronavirus Large Business Interruption Loan Scheme (CLBILS) have now been announced in order to plug the gap.

CLBILS went live on 20 April.

All viable business with a turnover of more than £45 million will be able to apply for up to £200 million of finance. This represents a change (as from 26 May) from the original scheme which permitted business with a turnover above £45 million to apply for £25 million of finance, and up to £50 million for firms with a turnover in excess of £250 million.

For facilities in excess of £50 million, there are additional eligibility criteria, namely restrictions on paying bonuses to senior management and restrictions on paying dividends.

As with CBILS, CLBILS will be deployed through a number of lenders accredited by the British Business Bank (BBB), which are listed on the BBB website.

The key features of CLBILS are very similar to the CBILS scheme for smaller businesses:

The maximum value of a facility provided under the scheme will be (i) £25 million for business with a turnover from £45 million to £250 million, and (ii) £50 million for businesses with a turnover of over £250 million
Finance provided can include loans, asset finance facilities, revolving credit facilities, overdrafts and invoice finance facilities
Finance terms are available from 3 months to 3 years (shorter than permitted under CBILS)
The scheme provides the lender with a government-backed, partial guarantee (80%) against the outstanding facility balance, subject to an overall cap per lender
CLBILS is a loan, not a grant, and businesses taking advantage of the scheme remain fully liable to repay the facility plus any interest and fees
There are no fees to access the scheme for businesses
One important difference between CBILS and CLBILS relates to interest and fees. Under the CBILS scheme for smaller businesses, interest and fees are paid by Government for 12 months. This is not the case with CLBILS, and businesses borrowing under CLBILS are expected to pay any interest and lender-levied fees. The 80% guarantee to the lender does extend to interest and fees as well as principle
Security: Lenders are expected to follow their normal credit policies when assessing security generally. Personal guarantees can be taken for facilities over £250,000, although claims on personal guarantees cannot exceed the 20% of losses on the CLBILS facility after all other recoveries have been applied

Lending under CLBILS must not be subordinated to any other senior debt obligations, subject to carve-outs for asset finance and invoice finance. The stated intention of the government in adopting this position is the protection of taxpayer interests.

Government has confirmed that the amount of funding available under CLBILS will be demand-led so funds will not run out. There is no immediate need to approach a lender if you do not need finance in the short term.

Eligibility

Businesses from most sectors can apply for the full amount of the facility. The following businesses and organisations are not eligible: credit institutions (falling within the remit of the Bank Recovery and Resolution Directive), building societies, insurers and reinsurers (but not insurance brokers), public-sector bodies, further-education establishments if they are grant-funded, state-funded primary and secondary schools.

To be eligible for a facility under CLBILS, a business must:

Be UK-based in its business activity, with annual turnover of more than £45 million
Have a borrowing proposal which, were it not for the current pandemic, would be considered viable by the lender, and for which the lender believes the provision of finance will enable the business to trade out of any short-to-medium term difficulty
Confirm that is has been adversely impacted by the coronavirus.

Lenders and borrowers are still free to enter into loan agreements outside of CLBILS. The scheme is intended to support businesses experiencing short to medium term difficulties due to the impact of coronavirus in circumstances where the lender reasonably believes that the finance will help the business to trade out of its cashflow difficulties and survive in the short to medium term.

If a business which is investment grade has participated in the CCFF scheme, it ceases to be eligible for CLBILS. Other types of aid do not impact CLBILS eligibility so businesses can still take advantage of other support such as the Coronavirus Job Retention Scheme, business rate reliefs or grants unrelated to the CLBILS scheme.

There will not be many sole traders meeting the threshold turnover for CLBILS, but sole traders and freelancers are eligible as long as the business activity is operated through a business account. The scheme is open to sole traders, freelancers, corporates, limited partnerships, limited liability partnerships and other legal entities carrying out a business activity in the United Kingdom, with a turnover of over £45m. The business must generate more than 50% of its turnover from trading activity.

If a business has previously had de minimis state aid, it does not impact eligibility for CLBILS and does not need to be taken into account by the Lender. De minimis state aid is state aid of up to €200,000 in total during the current and previous two fiscal years. If a business has received state aid above that threshold, it may impact CLBILS eligibility.

There has been some delate about whether private equity backed businesses would be eligible, with PE firms uncertain as to whether the £50 million maximum loan amount would be applied across their entire portfolio of investee companies. It is now clear that PE backed businesses can apply for loans under CLBILS on a standalone basis.

How to Apply

CLBILS is available through BBB’s 40+ accredited lenders. These are listed on the BBB website. These lenders range from high-street banks, to challenger banks, asset-based lenders and smaller specialist local lenders.

In the first instance, businesses should approach their own provider – ideally via the lender’s website. Telephone lines are likely to be busy and branches may have limited capacity to handle enquires due to social distancing.

In assessing applications for CLBILS loans, lenders are typically requesting management accounts, cash flow forecasts, business plan, historic accounts and details of assets. The requirements vary by lender so if you do not have everything mentioned, do not be put off from speaking to your lender if you need additional funding.

Decision-making on whether businesses are eligible for CLBILS is fully delegated to the accredited CLBILS lenders.

In the event that a lender turns down a CLBILS proposal, you can still approach other lenders within the scheme.

Further Information

BBB asks that any questions are directed by businesses to their current providers, not BBB directly. The BBB website contains a links to an FAQ page which answers many of the more common questions:

• CLBILS FAQs for businesses;

If you have any queries regarding business funding (under CLBILS, CBILS or otherwise) please do not hesitate to contact one of our team.

The information on this site about legal matters is provided as a general guide only. Although we try to ensure that all of the information on this site is accurate and up to date, this cannot be guaranteed. The information on this site should not be relied upon or construed as constituting legal advice and Howes Percival LLP disclaims liability in relation to its use. You should seek appropriate legal advice before taking or refraining from taking any action.

The Coronavirus Large Business Interruption Loan Scheme – Is your business eligible?

Eligibility

How to Apply

Further Information

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