The Coronavirus (Covid-19) Business Interruption Loan Scheme

What is the Coronavirus (Covid-19) Business Interruption Loan Scheme?

The Coronavirus (Covid-19) Business Interruption Loan Scheme ("CBIL Scheme") is part of the UK Government's financial response to the Covid-19 pandemic.

The CBIL Scheme will be delivered through a revised version of the existing Enterprise Finance Guarantee Scheme and operated by the British Business Bank, facilitating lending to businesses where Covid-19 has caused concerns as to the short-to-medium term performance of the business but the business is otherwise viable. It is expected to run for an initial period from 23 March 2020 until 30 September 2020.

We have broad experience advising banks participating in the CBIL Scheme and would be happy to provide assistance to them or their borrowers in relation to this new regime.

Which businesses are eligible for the CBIL Scheme?

The CBIL Scheme is targeted at UK SMEs which have existing borrowing from a lender which participates in the CBIL Scheme and which meet the criteria set out below. Large enterprises may also be eligible if they meet these criteria.

1. There are concerns as to the short-to-medium term performance of the business leading to possible cashflow issues as a result of the impact of Covid-19.
2. The business has an annual turnover which does not exceed £45,000,000.
3. The business is involved in any sector (other than provision of finance and certain other export-related activities).
4. The business is not in financial distress other than as a result of the impact of Covid-19.
5. The business is viable (as assessed according to the lender's normal commercial practice) but, for a loan in excess of £250,000, has inadequate security to meet the lender's usual security requirements.
6. The business has not exhausted any applicable state aid limits.

A full list of CBIL Scheme lenders is available here.

What are the key features of a CBIL Scheme Facility?

Lenders may use the CBIL Scheme to originate term loans and revolving credit facilities as well as asset finance facilities and invoice discounting facilities. Facilities originated under the CBIL Scheme will benefit from:

1. for lenders, a guarantee to the lender from the UK Government of 80% of net losses (i.e. post-recovery losses) should a borrower default; and
2. for borrowers, a Business Interruption Payment from the UK Government equivalent to 12 months of interest and fees payable on the facility.

In a generous concession to borrowers under the CBIL Scheme, they are not required to pay any fee to the UK Government in exchange for the guarantee that it is providing to the lender – as a comparison under the Enterprise Finance Guarantee Scheme there was a 2% fee payable by the borrower. This cost is rather born by the Lenders who instead pay the Government a fee calculated according to the amount guaranteed, the tenor of the debt and the nature of the borrower.

The maximum amount of a CBIL Scheme Facility is £5,000,000, with a maximum term of six years for term loans and asset finance facilities and three years for revolving credit facilities and invoice financing facilities.

The Business Interruption Payment (the "BIP") and the Covid-19 State Aid framework

The BIP will be offered to all participants in the CBIL Scheme, and will be paid directly by the UK Government to the lender in order to cover payments of interest and fees charged by the lender for the first 12 months of the term of the CBIL Scheme Facility. Where the facility is for invoice financing or asset finance, the BIP will cover the interest equivalent under that facility. In no circumstances will the BIP cover default interest or extraordinary fees.

State Aid rules are applicable to the BIP, so borrowers will be asked to confirm to lenders whether the borrower (or its group) have received any other payments under the Covid-19 State Aid framework. This may include other direct grants, repayable advances, tax or payments advantages. Any such amounts will be deducted from the amount of any BIP a borrower receives. The Covid-19 State Aid framework also means the aggregate amount of the BIP which a borrower (or its group) may receive is subject to a cap of €800,000 all sectors, except for fishing and aquaculture (where the limit is €120,000) and the primary production of agricultural products (where the limit is €100,000).

Other points to consider

Much like the Covid Corporate Financing Fund (on which see my colleague Olga Galazoula's previous article here), the CBIL Scheme will be welcomed by a number of businesses whose cashflows and short-to-medium term financial requirements have been thrown into disarray by Covid-19. It will also be welcomed by lenders who will now have the reassurance of the UK Government when extending further credit support to their existing borrowers, especially those borrowers for whom the Covid Corporate Financing Fund is not a viable option.

That said, the CBIL Scheme leaves some questions unanswered. A substantial number of UK corporates will potentially be caught in a squeezed middle between the Covid Corporate Financing Fund which is available to investment grade corporates and the upper end of the CBIL Scheme eligibility criteria. Measures announced by the Chancellor of the Exchequer more recently such as the guarantee of companies' wage payments will go some way to plug this gap but it may be the case that a number of business will still run into liquidity issues as a consequence of this pandemic.

Please do reach out to your usual Ashurst contacts if you would like to speak to us about the CBIL Scheme.

With special thanks to Sebastian Brignell, Associate, for his contribution.