Launched in early April, the Coronavirus Large Business Interruption Loan Scheme (CLBILS) aimed to quell the growing tide of criticism facing the existing CBILS scheme. Many industry bodies and businesses, including Osborne Clarke, raised concerns that CBILS failed to help the 'squeezed middle' of UK plc, by cutting out a large number of businesses which were too big for the CBIL scheme but too small for the investment grade scheme.
CLBILS sought to address those concerns and Osborne Clarke welcomed the change. This week, we understand that the Treasury is considering increasing the amount of debt that can be borrowed under CLBILS, from £50m to £200m. This could represent a key step-change for large UK businesses across all sectors that need access to significant levels of emergency funding to survive the severe disruption to operations during lockdown, but that have been unable to satisfy the investment grade criteria for the commercial paper programme.
CLBILS is similar, on the face of it, to the CBIL scheme as it is delivered by accredited commercial lenders with the government guaranteeing 80% of each individual loan. Loans are available to UK-based businesses with an annual turnover of over £45m that can self-certify that they have been adversely impacted by the Covid-19 pandemic. However, unlike CBILS, there is no 12 month interest free period or relief from lender-levied fees, so commercial rates of interest will be charged over a maximum repayment term of three years.
To date, only a small number of loans (59 reported earlier this week by the British Business Bank) have been made under the CLBILS scheme. Each lender had to produce its own documentation quickly to carefully reflect the terms of the scheme, and these are now generally up and running. We know that many more CLBILS applications are being processed by our accredited lending clients, and we expect to see the number of approved lends tick up over the coming weeks.
An increase in limit would be a positive step, but challenges remain with the CLBILS scheme for borrowers, and we are not convinced that the ceiling on such loans is what is holding-back demand for them. Structuring a CLBILS loan alongside syndicated loans and other finance streams is very intricate, requiring significant analysis. Lenders are nervous about creating structures that do not meet the criteria for Government support. And, as described above, pricing on a CLBILS loan is not as attractive as it is on the smaller CBIL and Bounce Back schemes. As such, some large UK corporate borrowers are currently looking to lenders for the funding they need in other ways, through extending existing debt or providing new invoice finance or asset-specific finance lines.
We watch with interest to see whether any increase in cap takes place, and the extent to which this might lead to a rise in the number of loans made under the CLBIL scheme.