chart and pen

UK: Government introduces series of loan schemes: Key features for borrowers

United Kingdom Publication May 2020

 

UK: Bounce Back Loan Scheme (BBLS)/Coronavirus Business Interruption Loan Scheme (CBILS)/ Coronavirus Large Business Interruption Loan Scheme (CLBILS) – A Comparative Table of Key Features for Borrowers

Introduction

In response to the COVID-19 pandemic, the UK government has introduced a series of schemes to assist UK businesses that are experiencing lost or deferred revenues, leading to disruptions to their cash flow as a direct result of the coronavirus (COVID-19) outbreak. 

In this briefing, we set out in table form, the different requirements under three such schemes, namely: the Bounce Back Loan Scheme (BBLS), the Coronavirus Business Interruption Loan Scheme (CBILS) and, the Coronavirus Large Business Interruption Loan Scheme (CLBILS).

Comparative Table 

  Bounce Bank Loan Scheme (BBLS) Coronavirus Business Interruption Loan Scheme (CBILS) Coronavirus Large Business Interruption Loan Scheme (CLBILS) 
Scheme Start Date and Duration 

Start date May 4, 2020

Duration: initially until November 2020 (government retains option to extend) 

Start date March 23, 2020

Duration: initially until September 2020 (government retains option to extend) 

Start date April 20, 2020

Duration: initially until November 2020 (government retains option to extend) 
What sort of businesses can apply  UK-based SMEs, micro businesses and other businesses requiring smaller loans  

Smaller UK-based businesses with a turnover of less than £45 million

CBILS is open to:

  • sole traders
  • freelancers
  • bodies corporate
  • limited partnerships
  • limited liability partnerships, and
  • any other legal entity carrying out business activity in the UK with: (i) an annual turnover up to £45 million, and (ii) its business activity is operating through a business account operating in any sector (other than a restricted sector –see “Restricted Sector” below) 

Larger UK businesses with a turnover of more than £45 million

CLBILS is open to:

  • sole traders
  • freelancers
  • bodies corporate
  • limited partnerships
  • limited liability partnerships, and
  • any other legal entity carrying out business activity in the UK with: (i) an annual turnover of more than £45 million, and (ii) its business activity is operating through a business account operating in any sector (other than a restricted sector –see “Restricted Sector” below) 
Total size of potential funding 

Term loan minimum £2,000 and up to the 25% of turnover

The maximum loan amount is £50,000 

(a) For term loans and overdrafts minimum will be £50,001

(b) For asset or invoice finance facilities only lenders will still be able to provide finance at less than £50,001

The maximum facility amount is £5 million


(a) Up to £25 million for borrowers with a group turnover of up to £250 million; or

(b) up to initially £50 million – increased May 26 to up to £200 million for borrowers with a group turnover greater than £250 million

In each case the amount borrowed should not be greater than (i) double the borrower’s annual wage bill for the most recent year available, or (ii) 25% of the borrower’s total turnover for the most recent year available, or (iii) with appropriate justification and based on self-certification of the borrower, the amount may be increased to cover their liquidity needs for the next 12 months 
How to Apply 

The BBLS scheme will be available through the British Business Bank’s accredited lenders (see “Accredited Lenders” below)

Businesses will be required to fill in a short online application form and self-declare that they are eligible for the Scheme (see “Eligibility Criteria” below) 

The CBILS scheme will be available through the British Business Bank’s accredited lenders (see “Accredited Lenders” below)

 

The CLBILS scheme will be available through the British Business Bank’s accredited lenders (see “Accredited Lenders” below)

 
Eligibility Criteria 

Potential borrowers must be able to selfdeclare to the lender that:

  • your business is engaged in trading or commercial activity in the UK and was established by March 1, 2020
  • your business is a UK-based limited company or partnership, or tax resident in the UK
  • your business has been adversely impacted by the coronavirus (COVID-19) pandemic
  • more than 50% of your business turnover is from trading activities (i.e. from the sale of goods and services)
  • you will use the facility primarily to support trading in the UK
  • your business is not a “business in difficulty” as of December 31, 2019 (if it was, then businesses in agriculture, aquaculture or fisheries may not qualify for the full amount; and the loan cannot be used for export-related activities (see below “What is a Business in Difficulty”)
  • your business is not in bankruptcy, liquidation or undergoing a debt restructuring at the time of making the loan application
  • your business (and any wider group of which it is part) is not already in the process of applying for or has not already received a Bounce Back Loan Scheme facility
  • your business (and any wider group of which it is part) has not yet obtained a loan through either the Coronavirus Business Interruption Loan Scheme (CBILS), the Coronavirus Large Business Interruption Loan Scheme (CLBILS), or the Covid Corporate Financing Facility (CCFF) facilities, unless the Bounce Back Loan fully repays such facility
  • Your business is not in a restricted sector (see “Restricted Sectors” below)

The application form requires confirmations to be given in relation to losses that may be incurred, impact on credit rating, financial risk to personal assets (other than primary residence and primary personal vehicle), reduced consumer protection provisions, data protection consents and that lenders will not assess affordability

Standard customer fraud, Anti-Money Laundering (AML) and Know Your Customer (KYC) checks will be undertaken by the lender and a lender may ask for additional information it requires such as recent tax returns 

To be eligible for a facility under CBILS, your business must:

  • be UK-based in its business activity
  • have an annual turnover of no more than £45 million
  • have a borrowing proposal which the lender would consider viable, were it not for the current pandemic
  • not be a “business in difficulty” as of December 31, 2019 (if it was, then businesses in agriculture, aquaculture or fisheries may not qualify for the full amount; and the loan cannot be used for export-related activities (see below “What is a Business in Difficulty”)
  • have more than 50% of its turnover from trading or commercial activities in the UK (i.e. from the sale of goods and services)

Note that exporting businesses are in principle eligible. The test is the location of economic activity rather than where sales are made

You must self-certify that your business has been adversely impacted by the coronavirus (COVID-19)

The facility will be used primarily to support trading in the UK

The Lender must: (a) consider the borrower’s proposal to be viable but for the COVID-19 outbreak; and (b) believe that the borrower will be able to trade out of any short to mid-term difficulties 

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

  • be UK-based in its business activity
  • have an annual turnover of more than £45 million
  • more than 50% of the businesses turnover must be generated from trading activity (i.e. from the sale of goods and services)

The borrower must be able to self-certify that it has been adversely impacted by the coronavirus (COVID-19) and must have a borrowing proposal which the Lender (a) considers viable but for the COVID-19 outbreak; and (b) believes will enable the borrower to trade out of any short to mid-term difficulties

The borrower must not have received a facility under the Bank of England’s Covid Corporate Financing Facility (CCFF) 
Other State Aid impact 

You cannot apply if you are already claiming under:

  • Coronavirus Business Interruption Loan Scheme (CBILS)
  • Coronavirus Large Business Interruption Loan Scheme (CLBILS)
  • COVID-19 Corporate Financing Facility (CCFF)

If you have already received a loan of up to £50,000 under one of these schemes you can transfer it into the Bounce Back Loan scheme. You have until November 4, 2020 to arrange this with your lender

If the business self-declares as not being a “business in difficulty” on December 31, 2019 (see “Eligibility Criteria” above), then any previous de minimis State aid does not impact a business’ eligibility for the Scheme

Any aid received under the Retail, Hospitality and Leisure Grant and any Business Interruption Payment received under the Coronavirus Business Interruption Loan Scheme will count towards their total State aid allowance under the Temporary Framework. Businesses are required to self-declare that, since March 19,  2019, they have not received more than £711,200 in State aid under the State Aid Temporary Framework (or £106,680 in the case of fisheries and aquaculture businesses, or £88,900 for agriculture businesses)

If the business self-declares as being a “business in difficulty” on December 31, 2019, then additional de minimis State aid restrictions apply  

Any previous de minimis state aid does not impact your eligibility for CBILS and the lender does not need to take it into account

If receiving aid as a result of COVID-19 certain payments you receive under such aid (e.g. Temporary Framework for State Aid to support the economy in the current COVID-19 outbreak) may count towards the amount of Business Interruption Payment (BIP) – i.e. the payments the UK Government will make to cover interest and fees on your loan 

The eligibility criteria for CLBILS does not require Lenders to take into account the other forms of government support that businesses may be benefiting from e.g. the Coronavirus Job Retention Scheme, business rate reliefs or grants unrelated to the CBIL scheme

The only exception to this is that companies may not utilise both CLBILS and the Bank of England’s CCFF facility for large investment grade companies 
When is a “Business in Difficulty” 

A business is considered in difficulty if it met any one of the following criteria on December 31, 2019:

  • Individuals or companies that have entered into collective insolvency proceedings
  • Limited companies which have accumulated losses greater than half of their share capital in their last annual accounts (this does not apply to SMEs* less than three years old)
  • Partnerships, limited partnerships or unlimited liability companies which have accumulated losses greater than half of their capital in their latest annual accounts (this does not apply to SMEs less than three years old)
  • Where the undertaking has received rescue aid and has not yet reimbursed the loan or terminated the guarantee, or has received restructuring aid and is still subject to a restructuring plan
  • A company which is not an SME where, for each of the last two accounting years: (i) its book debt to equity ratio has been greater than 7.5; and ii) its EBITDA interest coverage ratio has been below 1.0
* SMEs are defined as a business with less than 250 employees and either (a) a turnover of less than £44.45 million or (b) a balance sheet of less than £38.22 million 

A business is considered in difficulty if it met any one of the following criteria on December 31, 2019:

  • Businesses that have entered into collective insolvency proceedings or have fulfilled the criteria to be put into collective insolvency proceedings
  • Limited companies which has accumulated losses which if deducted from the company’s reserves leads to a negative amount that exceeds half of the company’s subscribed share capital in their last annual accounts (this does not apply to SMEs* less than three years old)
  • Partnerships, limited partnerships or unlimited liability companies which have accumulated losses greater than half of their capital in their latest annual accounts (this does not apply to SMEs less than three years old)
  • Where the undertaking has received rescue aid and has not yet reimbursed the loan or terminated the guarantee, or has received restructuring aid and is still subject to a restructuring plan
  • A company which is not an SME where, for each of the last two accounting years: (i) its book debt to equity ratio has been greater than 7.5; and ii) its EBITDA interest coverage ratio has been below 1.0

* SMEs are defined as a business with less than 250 employees and either (a) a turnover of less than £44.45 million or (b) a balance sheet of less than £38.22 million

These criteria do not apply to SMEs that, on December 31, 2019, had existed for less than three years. That means that certain fast-growth businesses may not be eligible for the scheme (unless they are less than three years old)

 
Borrower Viability Test  N/A 

Yes - the proposed borrower’s short-to-medium term viable business proposition is assessed according to a Lender’s normal commercial lending criteria

The Lender may still lend under CBILS  even if the proposed borrower’s viability is uncertain if in the Lender’s reasonable opinion (a) the finance will help the proposed borrower trade-out of any short-to-medium term cash flow difficulty, and (b) if the facility is granted, the proposed borrower is not expected to go out of business in the short-to-medium term 

For small value loans (e.g. those under £30,000) the credit worthiness of the proposed borrower may be determined based on a Lender’s normal unsecured credit score methodology and/or approval cut off (including any appeals process) applied prior to any changes to reflect coronavirus (COVID-19) impact   
The scheme is intended to include businesses where there are short-to-medium term performance issues due to adverse impacts of the coronavirus, but lending can only be agreed where a lender reasonably believes (a) the finance will help them trade out of any short-to-medium term cash flow difficulties, and (b) if the facility is granted, the borrower is not expected to go out of business in the short-to-medium term 
Type of facilities available  Term loan only  Term loans, overdrafts, invoice finance & asset finance available  Term loans, overdrafts, invoice finance & asset finance available 
Purpose 

The loan must be for business purposes

The loan may be used to refinance other loans that the borrower has 
CBILS can be used to facilitate new lending and to a limited extent, to refinance existing debt (refinancing is generally limited to a maximum 20% of a Lender’s annual portfolio of CBILS supported lending)  CLBILS can be used to facilitate new lending and to a limited extent, to refinance existing debt (refinancing is generally limited to a maximum 20% of a Lender’s annual portfolio of CLBILS supported lending) 
Maximum Term

Fixed term of six years

No principal repayments during the first 12 months

 

Term loans and asset finance facilities-up to six years

Overdrafts and invoice finance facilities – up to three years

Principal repayment holidays are at the discretion of the lender 
Three years 
Fees and Interest –(i.e. Business Interruption Payments)

No set-up fees payable by borrowers

First 12 months of interest payments covered by government 

Interest fixed at 2.5% p.a.

No fees for early repayment

Note: Fisheries, agriculture and aquaculture businesses may not qualify for the full interest and fee payments by government 

Interest and fees are set by accredited lenders and will vary by lender

First 12 months of interest and Lender-levied fees covered by government

Note: Fisheries, agriculture and aquaculture businesses may not qualify for the full interest and fee payments by government 
No Business Interruption Payments will be made by government and lenders can apply commercial interest rates   
Liability  Businesses remain 100% liable to repay the full loan amount at the end of the term, as well as interest, after the first year    Businesses remain 100% liable to repay the full loan amount at the end of the term, as well as interest, after the first year  Businesses remain 100% liable to repay interest and the full loan  amount at the end of the term 
Security 

Borrower’s main home or primary personal vehicle cannot be taken as security

For sole traders or partnerships, who do not have the benefit of limited liability, other personal assets may be at risk of recovery action 

At the discretion of the Lender save in respect to personal guarantees (se “Personal Guarantees” below)

Unsecured facilities of up to £250,000

For facilities above £250,000, the Lender must establish that the borrower is unable to provide security before making a loan under the CBILS

The primary residential property is not to be taken as security for any CBILS facility 
Lenders may follow their normal credit policies when requiring security  
Personal Guarantees 

Lenders are not permitted to take personal guarantees

 

No personal guarantees for any facilities below £250,000

Personal guarantees may still be required for facilities above £250,000 

No personal guarantees for any facilities below  £250,000

Personal guarantees may still be required for facilities above £250,000. However, claims on personal guarantees cannot exceed 20% of losses after all other recoveries have been applied  
Restrictive Covenants to be inserted into facility agreement  N/A  N/A 

Under the terms of the CLBILS facility certain restrictive covenants must include:

  • Dividends: Borrowers cannot make any dividend payments other than those that have already been declared
  • Share buyback: Borrowers agree not to make any share buybacks
  • Executive pay: Borrowers cannot pay any cash bonuses, or award any pay rises to senior management (including the board) except where they were a) declared before the CLBILS loan was taken out, b) is in keeping with similar payments made in the preceding 12 months, and c) does not have a material negative impact on the borrower’s ability to repay the loan 
Government Guarantee   The accredited Lender will have the benefit of a government-backed, full guarantee (100%) against the outstanding guarantee facility balance (both principal and interest)  The accredited Lender will have the benefit of a government-backed, partial guarantee (80%) against the outstanding guarantee facility balance (only principal)  The accredited Lender will have the benefit of a government-backed, partial guarantee (80%)  

Restricted Sectors

Businesses which are not eligible to apply for financing under a scheme 

Banks and building societies

Insurers and reinsurers

Public sector organisations

State funded primary and secondary schools

An individual other than a sole trader or a partner acting on behalf of a partnership 

Banks and building societies

Insurers and reinsurers

Public sector organisations

 

Banks and Building Societies

Insurers and reinsurers

Public sector organisations

State funded primary and secondary schools

Further-education establishments, if they are grant-funded 
Accredited Lenders can be located at:  https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-schemes/bounce-back-loans/current-accredited-lenders-and-partners/  https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-schemes/bounce-back-loans/current-accredited-lenders-and-partners/  https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-schemes/clbils/current-accredited-lenders-and-partners-2/ 
Borrower’s Legal Protection  

The provisions of the Consumer Credit Act which require lenders to provide sole traders, small partnerships and unincorporated associations seeking finance up to £25,000 with information before a loan is granted, and to provide further information throughout the course of the agreement do not apply under the BBLS

However, lenders will still be required to provide relevant information to businesses and the collection of the BBLS  loans will be regulated, meaning that, should businesses encounter financial difficulty, lenders will have to comply with relevant regulations

Borrowers are advised that they should seek independent legal advice if they are in any doubt about the consequences of the loan agreement not being regulated by the Financial Services and Markets Act 2000 or the Consumer Credit Act 1974 or any other aspect of taking out a loan 
All existing statutory rights (for example, Consumer Credit Act and FCA protections) apply   

Conclusion

The outline above is a summary of the requirements under each of the BBLS, CBILS and the CLBILS.   

At Norton Rose Fulbright, we have extensive experience in helping clients navigate the complex legal and structuring issues that can arise in these areas. Please speak to your usual Norton Rose Fulbright contact if you would like to discuss any of the issues raised in this briefing in further detail.

Detailed information of the Schemes can be found on the British Business Bank website: https://www.british-business-bank.co.uk/



Recent publications

Subscribe and stay up to date with the latest legal news, information and events...