On Monday 27 April 2020, the QCA and Grant Thornton UK LLP held a webinar on navigating the Coronavirus debt finance support schemes. The webinar provided an overview of:
- The current schemes available;
- Lenders and borrowers; and
- The practical points on applications and business plans.
Below is a summary of the schemes available, what they are, who is eligible/not eligible and insights into the schemes.
Coronavirus Business Interruption Loan Scheme (CBILS)
What is it?
Through the British Business Bank (BBB), the Government will provide accredited lenders with an 80 per cent guarantee on debt facilities up to £5 million.
Who is and isn’t eligible?
UK-based businesses (private equity and PLCs) with an annual revenue of less than £45 million.
Most financial services companies, such as institutions and insurance companies, are not eligible.
What other key information is there?
- The Government will make a Business Interruption Payment to cover the first 12 months of interest payments, as well as any lender-levied charges.
- The borrower is solely reliable for the debt.
- The £45 million revenue cap will apply to the group of companies rather than entity-by-entity.
- CBILS is now available to previously ineligible companies deemed to already have sufficient security in order to make the scheme more easily accessible.
Coronavirus Large Business Interruption Loan Scheme (CLBILS)
What is it?
Through the British Business Bank (BBB), the Government will provide accredited lenders with an 80 per cent guarantee on debt facilities up to £25 million for companies with an annual revenue between £45 million and £25 million and £50 million for companies with an annual revenue over £250 million.
Who is and isn’t eligible?
UK-based businesses with an annual turnover of more than £45 million who have been unable to secure regular commercial financing are eligible.
Banks and building societies, insurers and reinsurers, and public-sector organisations are ineligible.
What other key information is there?
- Similar to the CBILS, the borrower is solely reliable for the debt.
- Unlike the CBILS, businesses will be liable for interest from the start.
- The Government guarantee has a maximum term of 3 years.
COVID-19 Corporate Financing Facility
What is it?
HM Treasury and the BoE will purchase commercial paper (CP) issued by large companies.
Who is and isn’t eligible?
To be eligible, a firm must have genuine business in the UK and will have to demonstrate that they were in sound financial health before the outbreak of the current crisis.
Firms below investment grade are not eligible and neither is CP issued by financial sector entities regulated by the BoE or the FCA.
What other key information is there?
- You do not need to have issued CP before to participate.
- A firm will need to be rated consistently by its banks as investment grade.
Discussion on lenders and borrowers
What are we seeing from lenders?
Lenders are aware that a lot of businesses are raising money that they wouldn’t have borrowed in normal circumstances, and as such, it is unlikely that they will enforce early repayment fees.
Regarding pricing, commercial lending rates varied substantially from 2-3% up to 10-12%, which was a concern to many borrowers. The BBB has since issued a cap on interest rates to 6%.
All lenders have their own policies on processes and timescales.
What are we seeing from borrowers?
A lot of businesses will seek to get rid of their debt as soon as possible when normal trading resumes in order to focus on growth again.
Many businesses have applied to multiple lenders in order to get the best offer.
Business plans and applications
What should companies bear in mind when formulating their business plan?
Some companies have rushed their business plan, which causes significant delays to the application process. The robustness of information is key in demonstrating the credit worthiness and appropriateness of debt for a business prior to the outbreak of Coronavirus. Businesses who were not credit worthy prior to the crisis are unlikely to be able to access the schemes.
On financial reporting and management accounts, it is important to demonstrate where the business has been impacted directly by Covid-19 and not by other external factors. As part of this, you need to be able to show what the shorter-term forecasts are and what measures the business has taken to mitigate the impact of the Coronavirus. Lenders are expecting businesses to have implemented measures, such as furloughing staff or taking capital repayment holidays or rental deferrals, in order to preserve the cash in the business. This will not impede a businesses ability to obtain access to the schemes.
To view the slides from the webinar, please click here.
