Further to our previous briefing, the Government, on Friday, announced changes to the Coronavirus Business Interruption Loan Scheme (CBILS) to make the scheme more accessible to SME businesses.
In addition, they have announced that a scheme for mid-market businesses, the Coronavirus Large Business Interruption Loan Scheme (CLBILS), is being established with further details to follow later this month. This update looks at the changes made to the CBILS and what we know about the CLBILS so far.
Please note: this update summarises the position as of this morning, Monday 6 April 2020. Further details and guidance may be released after the date of the briefing. We will continue to provide updates as further information is released.
- Coronavirus Business Interruption Loan Scheme
The key change to the CBILS has been to remove the both the requirement for business to have been unable to access a loan on normal commercial terms prior to accessing the scheme and the requirement for the lender to establish a lack, or absence, of security for loans over £250,000.
This means that it should now be easier for lenders to offer loans under the CBILS as they do not need to first offer an alternative or make an assessment of the available security prior to accessing the scheme.
The remaining criteria for the scheme remains the same and the lender must still establish the business is viable in the longer term and the loan will enable the business to trade out of short-term difficulties caused by COVID-19.
An important clarification has been made to the scheme which restricts where personal guarantees can be taken by the lender in addition to receiving the Government guarantee:
- For loans of up to £250,000, lenders are not permitted to take personal guarantees; and
- For loans over £250,000, lenders are permitted to take personal guarantees (at their discretion) but the Government has stated that these must be limited to 20 per cent. of any amount outstanding on the CBILS lending after any other recoveries from business assets.
Lenders can still however take other security over the business which may be available to them (although they are restricted from taking security over an individual's principal private residence).
- Coronavirus Large Business Interruption Loan Scheme
The Government has announced that there will soon be a government-backed scheme available for mid-market businesses which will be similar to the CBILS. The Government has stated that further details will be available later this month and that the scheme will provide a government guarantee of 80 per cent of the facility amount to lenders to enable them to make loans of up to £25 million to businesses with a turnover of between £45 million and £500 million.
- Our Observations on Last Week's Announcements
The CBILS has faced a lot of scrutiny in the media over the past few days and so it is hoped that the relaxation of the requirements to access the scheme will allow lenders to make loans available under the CBILS more easily and speed up the process.
The clarification on personal guarantees and security is welcome given that the guidance previously issued was unclear on this point. However, whilst the position on personal guarantees will be welcomed by the smallest of business seeking loans under £250,000, business owners seeking loans over £250,000 will still need to consider if they are willing to provide a personal guarantee if required to do so by the lender.
Businesses will also need to be mindful that a lender may ask for further security and still need to be examining how accessing further funding will impact on their existing financing arrangements as we examined in our previous briefing.
The announcement of the CLBILS will be welcome news for the mid-market businesses who previously found themselves in limbo not being eligible for the Covid Corporate Financing Facility nor the CBILS. However, on the basis of the Government's announcement that further details would follow "later this month", it may be a few days or weeks before further detail about the new scheme is announced and the scheme is available to access.
In the meantime, those businesses can be considering their existing financings to assess whether consents or waivers would be needed from their existing lenders if they think they may seek to incur further financial indebtedness under the CLBILS.
Please do not hesitate to contact us if you require support in accessing the CBILS and we look forward to keeping our clients updated on the requirements for the CLBILS, and guiding them through that process, once further details are announced.