Public support schemes for small and medium-sized businesses
The Chancellor has set out a package of measures to support small and medium-sized businesses through the disruption caused by Covid-19. This alert focuses on the Coronavirus Business Interruption Loan Scheme (“CBILS”) and the Term Funding scheme with additional incentives for Small and Medium-sized Enterprises (“TFSME”).
The Coronavirus Business Interruption Loan Scheme
Under the CBILS, funding is provided to businesses through accredited lenders. The CBILS provides the lender with a government-backed, partial guarantee (80%) managed through the British Business Bank (the “BBB”) against the outstanding facility balance, subject to an overall cap per lender.
According to the BBB’s dedicated webpage, in the first instance, businesses should approach their own provider – ideally via the lender’s website. Businesses should also consider approaching other lenders if they are unable to access the finance they need. Decision-making on whether the relevant business is eligible for CBILS is fully delegated to the 40+ accredited CBILS lenders.
Key features of the scheme:
- Timing: the scheme went live on 23 March 2020 and will run for an initial period of 6 months.
- Size: the maximum value of facilities that will be backed under the scheme is £5 million (originally it was announced to be £1.2 million). The government will provide the lender with a guarantee of 80% of the outstanding facility balance (subject to an overall cap per lender/portfolio). However, the borrower will, at all points, remain 100% liable for the repayment of the debt.
- Fees and interest payments: SMEs will not be required to pay any fee to access the CBILS but the lenders will pay a fee to access the scheme. The government will also cover any lender levied fees (such as arrangement fees or early repayment charges) as well as the interest for the first 12 months. In addition, some lenders have indicated that they will not charge arrangement fees or early repayment charges to SMEs borrowing under the scheme.
- SMEs from all sectors may apply, subject to certain exceptions:
- banks, building societies, insurers and reinsurers (but not insurance brokers);
- the public sector including state funded primary and secondary schools; and
- employer, professional, religious or political membership organisation or trade unions.
- The SME must have an annual turnover of not more than £45 million and it seems likely that the turnover limit applies on an individual entity basis, consistent with the thresholds for SMEs in EU legislation. More than 50% of this turnover must be generated from trading activity.
- The SME must be UK based in its business activity – although the current guidelines do not require the business to be specifically UK incorporated.
- The SME must also present a borrowing proposal which, were it not for the COVID-19 pandemic, would be considered viable by the lender.
- CBILS is currently available only through the BBB’s accredited lenders, whose details are listed on the BBB website.
- The lenders listed on the BBB website include high street banks such as Barclays, RBS, HBSC and Natwest as well as challenger banks.
- Products covered: CBILS support will cover a range of products - (i) term loans; (ii) overdrafts; (iii) invoice financing; and (iv) asset financing.
- Term: Term loans and asset finance will be supported by guarantee facilities on repayment terms up to 6 years, whereas overdrafts and invoice finance facilities will be supported for a term of up to 3 years.
- Security: Security package may be determined at the discretion of the lender. For unsecured facilities, CBILS can be used for facilities of up to £250,000. For facilities of more than this amount, lenders may have to establish lack or absence of security prior to the business relying on CBILS. Primary residential property cannot be taken as security under the scheme.
Term Funding scheme with additional incentives for Small and Medium-sized Enterprises
Conceptually similar to other BoE facilities, the TFSME will offer 4-year funding to participants on rates at or close to the Bank Rate (which is now reduced to 0.1%) against the provision of eligible collateral (subject to haircuts) by those participants. It is still unclear whether the scheme can also be used to fund larger corporates, however, the focus seems to be to make additional lending available to the real economy, and especially SMEs.
The BoE expectation is that over the next 12 months the TFSME will offer funding of at least 10% of participants’ share of real economy lending. Its experience from the existing Term Funding Scheme (which ran from September 2016 to February 2018 and is closed to new drawings) suggests that the TFSME could provide in excess of £100 billion in term funding.