Coronavirus Large Business Interruption Loan Scheme
The UK Government has established the Coronavirus Large Business Interruption Loan Scheme (CLBILS), to provide a liquidity lifeline for mid-sized corporates in the UK which are either too large to access the smaller Coronavirus Business Interruption Loan Scheme (CBILS) (through which loans of up to £5m are made available for companies with turnovers of up to £45m) or who have not been able to access the Bank of England’s Covid Corporate Finance Facility (CCFF) which is open to only the largest corporates.
What is CLBILS?
The CLBILS will enable accredited lenders to provide loans which are 80% guaranteed by the British Business Bank (BBB) to eligible UK corporate borrowers across a range of approved products.
The BBB published details of the CLBILS on its website on 16 April 2020.
The CLBILS opens on 20 April 2020.
Am I eligible?
The CLBILS is open to borrowers that:
- are UK based in their business activity;
- have an annual turnover of more than £45m;
- confirm they have been adversely impacted by COVID-19;
- have a borrowing proposal which the lender:
- would consider viable were it not for the COVID-19 pandemic; and
- believes will enable the business to trade out of any short-to-medium term cashflow difficulties; and
- have not already accessed the CCFF.
The scheme is open to businesses from all sectors, however, the following will not be eligible: credit institutions (falling within the remit of the Bank Recovery and Resolution Directive), building societies, insurers and reinsurers (but not insurance brokers), public-sector bodies, further-education establishments (if they are grant-funded), state-funded primary and secondary schools.
The CLBILS, however, is wider in its application than the CCFF scheme. For example clients, such as insurance brokers, that have not been able to access the CCFF scheme due to being FCA regulated are now able to access the CLBILS. However, for those businesses the debt quantum and pricing applicable to CLBILS is somewhat cold comfort (65bps on £300m, at the lower end of the CCFF spread, does not compare favourably to commercial rates of interest on up to £50m).
How much can I borrow?
Under the CLBILS, the government will support loans of:
- up to £25m for borrowers with a group turnover of between £45m and £250m; and
- up to £50m for borrowers with a group turnover greater than £250m.
In each case, the amount borrowed is subject to additional limits and should not be greater than (i) twice 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.
With appropriate justification and based on self-certification of the borrower, the amount may be increased to cover liquidity needs for the next 12 months from the point of borrowing. The borrower’s plan of its projected liquidity needs may include both working capital requirements and investment costs.
What type of products are available?
Loans are available for a term of three months up to three years across a range of products, including term loans, revolving credit facilities, invoice finance and asset finance facilities.
From discussions with lenders it would appear that such facilities (where they take the form of a term loan) will be offered by way of a final bullet repayment (rather than amortising).
Security
CLBILS facilities may be secured, in line with a lender’s usual credit policy for lending.
Personal guarantees
Lenders will not be able to ask for personal guarantees for facilities under £250,000.
For facilities of £250,000 and over, claims on personal guarantees for a CLBILS facility cannot exceed 20% of losses on the scheme facility after all other recoveries have been applied.
This condition feels like an overspill from the CBILS and should have little application for CLBILS as we would not normally expect to see personal guarantees in this space in the market.
Practical tips for accessing the scheme
- Make it easy for your lender to support your application. As a minimum make sure you have the following:
- Last 3 years’ management accounts;
- Cash flow forecast;
- Business plan;
- Historic accounts;
- Details of assets; and
- Details of any other security or financing that you have in place (copies of all relevant documents);
- Have a clear idea of the amount you want to borrow.
- If you have other lenders or investors and need their consent to enter into CLBILs funding engage early with those parties to obtain any consents/amendments/waivers.
- If your existing lender turns you down consider approaching other lenders (a rejection from one lender does not mean that all lenders will turn you down)
- Engage with your lawyers/accountants to help with your application
Other points to note
Borrowers will remain 100% liable for repayment of any facility supported by CLBILS.
Unlike CBILS, there is no 12 month interest free period under CLBILS.
Eligibility for CLBILS does not preclude a borrower from entering into an alternative, normal commercial lending product (for example, where there would be no economic benefit to the borrower from taking out a CLBILS loan as opposed to another lending product available at the relevant bank).
Wider considerations
Required consents and amendments to existing facility agreements
Consider the terms of any existing financing arrangements as to ability to take on the additional indebtedness represented by a CLBILS facility.
Relevant consents under, and potentially amendments to, current financing arrangements may be required from an existing lender to enable a company to borrow a CLBILS facility.
Consents may be required for additional borrowing, additional security and/or additional guarantees. If additional debt is introduced into your funding structure will you need to amend you existing financial covenants to cater for this?
Impact on intercreditor arrangements
For companies with a range of creditors, whose positions are regulated by an intercreditor agreement, discussions will need to be had in due course with other creditors as to where the CLBILS facility slots into the existing order of priority of debt and security rankings in their intercreditor arrangements.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at April 2020. Specific advice should be sought for specific cases. For more information see our terms & conditions.
