UK Government Response to COVID-19

This alert is up-to-date as at 18:00 (GMT) on Friday 3 April 2020. This update serves as a follow up to the memorandum dated 23 March 2020 which can be found here. This does not constitute an exhaustive list of measures proposed by the UK Government. The public guidance is being continually updated by the UK Government, HM Treasury and the Bank of England which is being closely monitored.

On 3 April 2020, the UK Government published changes that will be made to the Coronavirus Business Interruption Loan Scheme (“CBILS”) expanding its scope and eligibility criteria with the intention that even more smaller businesses can access funding required. It is expected that the expanded operation of the CBILS will take effect from Monday 6 April 2020.

The following is a short summary of the key points the Government update addressed:

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  • Accredited lenders will not be permitted to reject applications for a CBILS loan on the grounds that the borrower SME would qualify for regular commercial financing:
    • insufficient security for regular financing has been removed as a condition for access to the CBILS; and
    • where a borrower has previously been denied access to a CBILS loan on these grounds they may re-apply.
  • Lenders are prohibited from requesting personal guarantees for any loan granted under the scheme for under £250,000.
  • Lenders may require personal guarantees for loans above this amount at their discretion but:
    • any recoveries are to be capped at 20% of the outstanding balance following the application of the proceeds of business assets;
    • Principal Private Residence security is prohibited; and
    • new rules will apply retrospectively to loans already granted under the scheme.

In order to speed up the processing of credit approvals, it is expected that operational changes will be introduced. As yet, such operational changes are not set out in detail.

In addition, the Government announced the launch of a new scheme to assist larger businesses: the Coronavirus Large Business Interruption Loan Scheme (“CLBILS”). Under this scheme, the Government will guarantee 80% of loans granted to businesses with an annual turnover of between £45 million and £500 million up to a value of £25 million. Loans granted under the CLBILS are to be offered at commercial interest rates set by the lenders. The usual credit checks will still be expected from the lenders. The CLBILS aims to target those businesses which were viable before the COVID-19 outbreak but now face significant cash flow difficulties. Business would remain liable for repaying any facility they take out.

The Government has set out the following eligibility criteria. The business must:

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  • be UK-based in its business activity;
  • have an annual turnover between £45 million and £500 million;
  • be unable to secure regular commercial financing;
  • have a borrowing proposal which the lender:
    • would consider viable, were it not for the COVID-19 pandemic; and
    • believes will enable you to trade out of any short-term to medium-term difficulty; and
  • not be from the following sectors:
    • banks and building societies;
    • insurers and reinsurers (but not insurance brokers); or
    • public-sector organisations, including state-funded primary and secondary schools.

It is expected that the CLBILS will launch later this month through accredited lenders. Further details in respect of the CLBILS and the eligibility criteria are expected later this month following additional consultation with banks and business groups.

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If you have any questions, or for further information please reach out to Mark Dorff.

The views expressed herein are solely the views of the authors and do not represent the views of Brown Rudnick LLP, those parties represented by the authors, or those parties represented by Brown Rudnick LLP. Specific legal advice depends on the facts of each situation and may vary from situation to situation. Information contained in this article is not intended to constitute legal advice by the authors or the lawyers at Brown Rudnick LLP, and it does not establish a lawyer-client relationship.