23 Mar 2020

A guide to government lending schemes – what you need to know

Updated on 27 April 2020.
 
The Chancellor has pledged £330 billion of government backed and guaranteed loans on ‘attractive terms’ for any business that needs cash to pay rent or salaries etc.
 
This funding is available in four main schemes, following the announcement on 27 April of 'Bounce Back Loans' for SMEs:
 
Bounce Back Loans
Bounce Back Loans are a new micro loan scheme, providing what the Chancellor claims is a 'simple, quick, easy solution for those in need of smaller loans'.
 
Businesses will be able to apply for the Bounce Back Loans for up up 25% of their turnover, up to a maximum of £50,000, with the government providing a 100% guarantee to reduce the friction inherent in the partially guaranteed loans to date.  The term on each loan will be six years.  There will be no interest, repayments or fees payable for the first 12 months.
 
There will be no forward-looking tests of business viability or complex eligibility criteria - just a 'simple, quick, standard form' for businesses to fill in - although the loans will only be available to businesses that were not in financial difficulty on 31 December 2019.
 
For most firms, it is claimed that the loans should arrive within 24 hours of approval.

The Chancellor has stated that the loans will be available from 9.00am on Monday 4 May.
 
Coronavirus Business Interruption Loan Scheme (CBILS)
CBILS was launched on Monday 23 March.  It is being delivered by the British Business Bank and is available from 40 accredited providers (see list here).  It will provide loans of up to £5 million.  The lending facilities can take the form of:
  • Term loans
  • Overdrafts
  • Asset finance
  • Invoice finance
The repayment terms vary from up to three years (for overdrafts and invoice finance facilities) to six years (for term loans and asset finance).
 
The loans will now be interest free for the first 12 months and are aimed at small and medium sized businesses (defined as those with turnover of no more than £45 million per annum).  Full details and FAQs are available here.
 
There are a number of eligibility criteria. However, these were amended on 3 April so that the scheme will be available to ‘all viable small businesses affected by COVID-19’ - not just those unable to secure regular commercial financing.  In practice, this means that borrowers will no longer have to first try to secure a normal commercial loan elsewhere. 
 
If you are looking for finance under CBILS, the government encourages you to approach your own provider in the first instance – ideally via their website. You may also want to take this opportunity to talk to us, as we can work with you to advise on your eligibility and the most appropriate facility for your business.
 
If businesses do not have a viable bank lending proposal, then other solutions may be available – please talk to us for more information.
 
Coronavirus Large Business Interruption Loan Scheme (CLBILS) 
The Chancellor launched on 3 April a new Coronavirus Large Business Interruption Loan Scheme (CLBILS) to the so-called ‘squeezed middle’ of mid-sized companies that were excluded from the previous lending measures.
 
CLBILS will provide a government guarantee of 80% to enable banks to make loans of up to £25 million to businesses with an annual turnover of between £45 million and £500 million. CLBILS lending will be offered ‘at commercial rates of interest’.
 
Based on the numerous conversations that we have had with clients, we expect significant demand for new facilities.  It is also clear that, for some businesses, this lending and the other initiatives introduced over the past few days by the government, may be insufficient to bridge the working capital shortfall resulting from significantly reduced turnover.   Restructuring or additional working capital funding may still be required, and businesses will need to constantly review their operations and see where efficiencies can be made.
 
Covid-19 Corporate Financing Facility (CCFF)
Under the CCFF, the Bank of England will buy short term debt from, primarily, larger companies that can demonstrate they ‘were in sound financial health’ prior to the current crisis.  Companies who wish to use the scheme do not need to have issued commercial paper before.
 
If you want to apply for the CCFF, you will need to contact your bank or finance provider in the first instance to check your business’ eligibility.  Once again, you may also want to take this opportunity to talk to us.
 
Further information is available from the Bank of England website
 
For more information about business funding and restructuring options, please contact John Needham (jneedham@pkf-littlejohn.com; +44 (0)20 7516 2284), Stephen Goderski (sgoderski@pkf-littlejohn.com; +44 (0)207 495 1100), Peter Hart (phart@pkf-littlejohn.com; ++44 (0)207 495 1100) or Chris Riley (criley@pkf-littlejohn.com; +44 (0)20 7516 2427).