Government backed loans for businesses dealing with COVID-19

COVID-19 is having a significant impact on the health of the nation, but the impact on UK businesses may last much longer.

Every business in the UK has been impacted by COVID-19 and it’s the primary issue on board agendas at present.  The virus is having a significant impact on corporate profits and balance sheets, and whilst the UK government have launched a range of solutions to support businesses, the immediacy of the current situation means that a lot of these solutions are still work in progress. 

Below we outline loan schemes that have been launched to support businesses, and the steps management should be taking in discussions with their lenders.

1. Coronavirus Business Interruption Loan Scheme (CBILS)

  • Revenue up to £45m
  • Loans up to £5m
  • Repayment term up to 6 years
  • Loans are interest free for first year
  • The government underwrites 80% of the loan in the event of default
  • Businesses must be able to demonstrate that they were viable prior to COVID-19

Previously banks were required to look at providing a loan on a normal commercial basis before utilising CBILS.  However guidance is changing in this respect. Further information can be found on our rolling summary of the Government support.

2. Coronavirus Large Business Interruption Loan Scheme (CLBILS)

CLBILS were introduced very recently following feedback that support was not being provided to business with revenues of £45m to £500m.  Much of the detail is still being considered and further information should be available during April 2020, but the principles are similar to the CBIL scheme.

  • Revenues £45m to £500m
  • Loans up to £25m
  • The government underwrites 80% of the loan in the event of default
  • Businesses must be able to demonstrate that they were viable prior to COVID-19
  • Available to business that are unable to secure normal commercial loan

You can subscribe to our updates on this scheme, and all of the government support packages.

3. COVID-19 Corporate Finance Facility (CCFF)

The CCFF is available for businesses with revenues over £500m, whereby The Bank of England will acquire corporate debt. The funding available depends on the company’s credit rating.

Further information can be found on our rolling summary of the Government support which is regularly updated.

How should management progress discussions with lenders

Whilst there are over 40 banks approved under the CBILS scheme, management should look for support from their existing banking relationship in the first instance.  Lenders are extremely busy with funding requests and whilst they are being pragmatic in their support of existing customers they have limited capacity to on-board new customers who have immediate funding requirements. Given the volume of  requests lenders are facing, it’s important that management are prepared for funding discussions and are able to meet the funders’ information requirements.

Businesses must be able to demonstrate that they were a viable prior to COVID-19. This is a prerequisite for any bank lending including CBILS and CLBILS.  Management must be able to identify the impact COVID-19 has had on the business and the actions they have undertaken to mitigate the funding requirement, including furloughing of staff and deferral of tax payments.

A credible plan and forecast needs to be provided, this should include short term flexibility, but also recognises that in the longer term the trading environment is unlikely to be as strong as pre-COVID-19.  Forecasts will need to be updated and management should consider multiple scenarios, forming a base case and downside view, which may be quite drastic. You can listen to our team discuss top tips on financial modelling here.

In the short term, covenants are being waived by many of the lenders we are speaking to. However, it’s important that when these are revisited they are set in a post COVID-19 market environment.

Have an early and open dialogue with your lender as strategies available to meet any funding gap are varied, and include: capital repayment holidays; use of overdrafts; extending existing facilities; implementing new facilities and use of CBILS/CLBILS.  Some of these options, such as repayment holidays, can be implements very quickly.  Whilst initially more limited, recent changes in guidance is increasing the application for CBILS and we expect that once fully launched, CLBILS will prove popular.

Funding for early-stage businesses

Many early-stage / start-up companies have found that they do not qualify for loans under the CBIL scheme. In reaction to their feedback, the government has launched the Future Fund. Given this is a new fund there is limited information on how businesses can apply for funding, however, further information can be found here.

Next steps

Make sure you get the appropriate advice and support.  Management teams are overloaded with the challenges that the coronavirus is bringing.  Addition support can take some of the heavy lifting off management, freeing them up to focus on the day to day. Guidance and legislation is changing quickly, an adviser can keep to informed and advised accordingly.

This article was written by our Corporate Finance Partner, Phil Sharpe. For more information, please contact Phil on the form below.

 

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.

 

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