On 17 December 2020, the UK government announced that both the Coronavirus Large Business Interruption Loan Scheme (CLBILS) and the Coronavirus Business Interruption Loan Scheme (CBILS) would be extended until 31 March 2021. The UK government launched the CLBILS and CBILS in spring 2020, to assist the UK economy following the outbreak of COVID-19. CLBILS and CBILS are a crucial part of the UK government's initiative to get credit flowing to firms who urgently need it during this difficult period, especially those facing significant and immediate loss of cash flow. This note summarises the key features of the schemes. Further information can be found on the British Business Bank website.
The CLBILS and CBILS follow the same basic structure.
What kind of funding is available?
- Finance is provided to borrowers based in the UK by a wide range of accredited commercial lenders at commercial rates of interest, with that finance (which, for simplicity, we call "loans" for the remainder of this note) being in the form of:
- term loans;
- revolving credit facilities (including overdrafts);
- invoice finance; or
- asset finance.
- Each borrower remains responsible for repaying 100% of any loan it takes out under the scheme.
Who can apply?
- Borrowers from any sector can apply, except for:
- banks and building societies;
- insurers and reinsurers (but not insurance brokers);
- public sector bodies;
- further education establishments, if they are grant-funded; and
- state-funded primary and secondary schools.
- Each borrower must have a borrowing proposal:
- which the lender would consider viable, were it not for the COVID-19 pandemic; and
- which the lender believes will enable the borrower to trade out of any short-term to medium-term difficulty.
- Borrowers must not be classed as a business or "undertaking" in difficulty at the date of application for a scheme facility (further details as to what constitutes a business or "undertaking" in difficulty can be found on the British Business Bank website).
What support does the government provide?
- The UK government provides lenders with an 80% guarantee for each individual loan.
Can lenders take personal guarantees and security?
- Personal guarantees of any form cannot be taken by lenders for facilities below £250,000. For facilities above £250,000, personal guarantees may be required, but claims cannot exceed 20% of losses after all other recoveries have been applied.
- Lenders are also prohibited from taking security over the principal private residence of a borrower or guarantor. Other security is permitted and, in the case of CLBILS, will often be necessary to satisfy the ranking requirements of a CLBILS loan (see below).
What are the key differences between the CLBILS and the CBILS?
- Eligible borrowers. The CLBILS is available to UK businesses with an annual turnover above £45 million, which have been impacted by COVID-19 and are unable to secure regular commercial financing. CBILS is available to UK businesses with an annual turnover of up to £45 million.
- Size of loans. Loans of up to £200 million are available under the CLBILS as opposed to loans of up to £5 million under the CBILS.
- Term of loans. CLBILS loans are available on repayment terms from three months to three years, as opposed to CBILS loans which are available for up to six years for term loans and asset finance facilities, and up to three years for overdrafts and invoice finance facilities.
- Interest and fees. The UK government makes a "business interruption payment" to cover the interest and any lender-levied fees in the first 12 months of a CBILS loan, allowing borrowers to benefit from no upfront costs and lower initial repayments. No such "business interruption payment" is available under the CLBILS. However, under the CLBILS, the 80% government guarantee covers interest and fees as well as principal, whereas under the CBILS the 80% government guarantee only covers principal.
- Dividends and other shareholder payments. CLBILS facilities in excess of £50 million must include restrictions on payments to shareholders and management. No such restrictions are in place for facilities provided under the CBILS.
- Ranking. CLBILS facilities must rank at least pari passu with the borrower's most senior obligations (including secured and/or super-senior obligations, if any). This is subject to certain carve-outs. In particular, other financiers may have priority claims:
These ranking requirements do not apply to CBILS facilities.
- oover collateral with an aggregate value not greater than 10% of the value of all relevant collateral; and
- under asset finance and invoice finance transactions entered into in the ordinary course of business.
- Subject to that cap, the maximum a business can borrow under the CLBILS is the highest of (i) double the annual wage bill in respect of its UK business for 2019; (ii) 25% of the total turnover of its UK business in 2019; and (iii) with appropriate justification and based on self-certification, an amount to cover the liquidity needs of its UK business for the 12 months following the granting of the relevant facility.↩