Coronavirus Large Business Interruption Loan Scheme
Updated on 2 October 2020
Government credit support for lending to larger firms
The UK Government has established the Coronavirus Large Business Interruption Loan Scheme (“CLBILS”) which will provide a partial government guarantee of 80% to enable banks to make loans of up to £200 million to firms with a group turnover of at least £45 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 United Kingdom business of the borrower for 2019; or (iii) with appropriate justification and based on self-certification of the borrower, the amount may be increased to cover the liquidity needs of the United Kingdom business of the borrower for the next 12 months.
The British Business Bank (the “BBB”) has published relevant guidance summarised below. Similar to the Coronavirus Business Interruption Loan Scheme for SMEs (the “CBILS”), the CLBILS will be delivered through commercial lenders, backed by the BBB.
How does it work?
Under the CLBILS:
- loans will be delivered through accredited lenders backed by the BBB;
- the government through the BBB will provide a guarantee of 80% of the loan;
- lenders will pay a fee to benefit from the government guarantee on each CLBILS facility. Fees will vary according to the length of the underlying facilities;
- borrowers will remain responsible for repaying the loan. Unlike the CBILS scheme, borrowers1 will not be able to access a Business Interruption Payment to cover interest or fees.
The CLBILS will support a wide range of businesses to access finance products, including working capital loans, invoice finance and asset finance. The term of financing can be from three months to three years.
Facilities supported by the guarantee will be provided by accredited lenders listed on the BBB’s website.
Companies must meet the following requirements to access the CLBILS:
(i) be UK-based in its business activity (the BBB's FAQs provide further detail on this requirement and confirm, among other things, that (a) a business must be trading in the United Kingdom and have the core of its business operations in the United Kingdom – a person will not be carrying on a business in the UK solely by selling into, or trading with a person in, the UK; and (b) a business which is foreign-owned is in principle eligible to apply for CLBILS, subject to the condition in (a) above, and provided it uses the CLBILS facility to support its business activity in the UK);
(ii) have an annual turnover of more than £45 million;
(iii) have a borrowing proposal which the lender:
- would consider viable, were it not for the COVID-19 pandemic; and
- believes will enable the firm to trade out of any short-term to medium-term difficulty.
(iv) self-certify that the firm has been adversely impacted by COVID-19; and
(v) not have received a facility under the Bank of England’s Covid Corporate Financing Facility (“CCFF”), the Bounce Bank Loan Scheme (BBLS) or the Coronavirus Business Interruption Loan Scheme (CBILS), unless the CLBILS loan will refinance the whole of the BBLS or CBILS facility. The borrower also not be able to use the CCFF, BBLS or CBILS for so long as the CLBILS loan is outstanding.
In addition, to be eligible for CLBILS, businesses should not be an “undertaking in difficulty” (a requirement under EU state aid law) at the date of application for the scheme (per the updated guidance of the BBB on 25 September 2020). While businesses previously had to demonstrate that they were not an “undertaking in difficulty” as of 31 December 2019, this proved particularly problematic for many portfolio companies of private equity sponsors who have struggled to satisfy an element of the “undertaking in difficulty” test relating to losses as a proportion of share capital. The change in guidance raises the possibility of sponsors undertaking a restructuring (for example converting loan notes into equity) before applying in order to satisfy this test.
Corporates from all sectors are eligible. However, (i) credit institutions and building societies, (ii) insurers and reinsurers (but not insurance brokers), (iii) public-sector bodies, including state-funded primary and secondary schools and (iv) individuals2 other than a sole trader or a partner acting on behalf of a partnership will not be eligible. Other than support under the CCFF, BBLS or CBILS, the eligibility criteria for CLBILS do not require lenders to take into account other forms of government support that businesses may be benefiting from e.g. the Coronavirus Job Retention Scheme.
All lending decisions (including borrower eligibility) remain fully delegated to the accredited lenders. Firms will need to disclose to the lender the amount they need to borrow, the purpose it will be used for and the repayment period. Lenders will also require supporting documents for the creditworthiness of the borrower such as management accounts, cashflow forecasts and historic accounts. The lender and the borrower are still free to enter into loan agreements outside of the CLBILS provided that such other loan does not rank senior to the CLBILS loan or have the benefit of collateral that the CLBILS loan does not have the benefit of on at least a pari passu basis.
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.
CLBILS facilities (other than residential development facilities) must rank on at least a pari passu basis with the most senior obligations (including secured and/or super-senior obligations, if any) of the borrower. This includes all 'security collateral' taken by any lender from the borrower. For these purposes, 'security collateral' is broadly drafted and includes security interests, guarantees and indemnities.
There are certain carveouts from this requirement including collateral:
- with an aggregate value not greater than 10% of the value (determined by the lender in accordance with its lending policies) of all security collateral that has been taken by any lender from the borrower at such time to support any one or more borrowing facilities of the borrower with any lender, and
- relating to asset and invoice finance facilities entered into in the ordinary course of business, advanced for the purpose of acquiring the asset over which such security was taken, where the proceeds of such collateral would not be available to be applied to any facility other than such financing, and where the lending policies and procedures of the CLBILS lender would not require it to take security over such collateral.
What is the window that the CLBILS scheme is open for?
The CLBILS scheme launched on 20 April 2020, and is currently open until 30 November 2020.