22 October 2020

Government-backed loan schemes – recent updates

1. Finance schemes extended until 30 November 2020

The Winter Economy Plan, launched by the Government on 24 September 2020, contains several measures designed to support businesses throughout the current coronavirus pandemic, including the extension of the Government-backed loan schemes.

Originally opened for six months only, each of the following schemes has now been extended for new applications until 30 November 2020:

  • The Coronavirus Business Interruption Loan Scheme (CBILS) provides loans of up to £5 million to eligible businesses (with a turnover of £45 million or less) with an 80% Government guarantee to the lender. Recent changes to the CBILS include the possibility for lenders to extend the term of their loan to up to ten years. New guidance has also been published by the British Business Bank to determine whether an applicant is an "undertaking in difficulty" (see section 2 below for more details).
  • The Coronavirus Large Business Interruption Loan Scheme (CLBILS) provides loans of up to £200 million to eligible businesses (with a turnover in excess of £45 million) with an 80% Government guarantee to the lender.
  • The Bounce Back Loan Scheme (BBLS), which is designed to support smaller businesses by providing loans between £2,000 and £50,000 with a 100% Government guarantee to the lender. Under the new Pay As You Grow plan, BBLS borrowers will be able to:
    • repay their loans over a period of up to ten years;
    • move temporarily to interest-only payments for periods of up to six months (up to three times); or
    • pause their repayments entirely for up to six months (only once and only after having made six payments).
  • The Future Fund, which provides convertible loans of up to £5 million, subject to at least equal matching from private investors.

2. Changes to the definition of “undertaking in difficulty”

Additionally, more companies should now be able to access the CBILS and the CLBILS following confirmation by the British Business Bank that the date for determining whether a company is an "undertaking in difficulty” has been amended.

When the Government initially extended the CBILS and the CLBILS to undertakings in difficulty last July (please see our post about this here), businesses applying for either scheme had to demonstrate (among other things) that they were not an "undertaking in difficulty" as of 31 December 2019 in order to be eligible.

However, on 25 September 2020, the British Business Bank introduced guidance which confirmed that the relevant date to determine whether a business is an “undertaking in difficulty” is the date of its application to one of the schemes. As a result, applicants which have been in recent financial difficulty but have now recovered could potentially access one of the schemes and applicants which are able to restructure their finances before applying may also now be eligible.

The definition of "undertaking in difficulty" includes businesses that:

  • have accumulated losses in excess of 50% of their share capital;
  • have entered into collective insolvency proceedings or meet the criteria to be put into such proceedings;
  • have received rescue aid which has not been repaid;
  • are under a restructuring plan and have received restructuring aid; and/or
  • have dropped below the necessary solvency ratios for the last 24 months (unless they are an SME).

Simona is an Associate in our Banking and Finance team.

Disclaimer

This note reflects our opinion and views as of 21 October 2020 and is a general summary of the legal position in England and Wales. It does not constitute legal advice.


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