Coronavirus Legal Briefing | The latest on the UK government’s funding schemes for business

Written on 24 Apr 2020

Welcome to Osborne Clarke's Coronavirus Legal Briefing, our newsletter on business law issues in these sombre times.

Welcome to Osborne Clarke's Coronavirus Legal Briefing, our newsletter on business law issues in these sombre times. In this edition, Dipika Keen discusses the UK government's package of funding schemes to support businesses, including this week's announcement of the 'Future Fund'.

If you would like more specific guidance, please connect with your usual Osborne Clarke contact.

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The four main funding schemes

Government announcements have come at pace over the last few weeks, and previously announced schemes have been changed and made more flexible in response to market feedback. The government is now offering loan and other funding schemes aimed at the full range of business, from pre-revenue/early-stage private companies up to the most mature/large enterprises.

These loan schemes are distinct from the various grant schemes which have been announced – most notably, the Job Retention Scheme for the furloughing of employees – because businesses will be expected to repay the money they drawn down. (On the JRS, our step-by-step guide on how employers can make a claim is here.)

There are four main funding schemes:

  • Future Fund: for early stage/venture capital backed businesses.
  • Coronavirus Business Interruption Loan Scheme (CBILS): for SMEs.
  • Coronavirus Large Business Interruption Loan Scheme (CLBILS): for large businesses.
  • The Covid Corporate Financing Facility (CCFF): for the largest, investment-grade businesses.

The first three of these are being run by the British Business Bank. The last of these is being run by the Bank of England. The rest of this Briefing looks at each in turn.

Future Fund

The Future Fund is the newest scheme and was announced on Monday 20 April. The scheme is intended to support "innovative businesses" which "have been unable to access other government business support programmes…because they are either pre-revenue or pre-profit and typically rely on equity investment". Applications are expected to be able to start in May 2020 and will initially be open until the end of September 2020.

The scheme is available for unlisted UK companies with "a substantive economic presence in the UK". The company must have previously raised at least £250,000 in equity investment from third-party investors in the last five years.

For this select qualifying group, the Fund may provide bridge loans ranging from £125,000 to £5 million. This can only be used for working capital purposes. The Fund's investment will have to be matched by at least the same amount from third party investor(s). And, as set out in the headline term sheet, the loans will, in most cases, convert into equity (shares in the business).

The government will therefore become an investor in the businesses which access the Future Fund.

There are still many questions about this scheme. For example, what is an "innovative business"? Who or what counts as a "third-party investor"? Will the requirement for at least 50% match funding be a practical barrier to take up? How will the working capital restriction interplay with existing/new debt? We explore some of these concerns in our Insight here.

Further details, which should hopefully bring some clarity on these issues, are expected before the scheme opens in May. A pattern of the government's announcements on support for business has been a series of subsequent clarifying and amending announcements, which brings us to the…

Coronavirus Business Interruption Loan Scheme

This was one of the earliest schemes announced and has already been through several iterations, as we discussed in this Insight.

The CBILS opened on Monday 6 April and is available to any UK business with a turnover of less than £45 million that is seeking up to £5 million in finance. The first 12 months' interest payment and lender fees are covered by the government. But the borrower remains liable to repay the loan – which can have a term of up to six years. Applications for loans under the scheme must be made to one of more than 40 accredited lenders, and those lenders are the decision makers as to whether or not to grant the loan.

The scheme got off to a slow start. Lenders were grappling with lockdown. And some rules – about security requirements, the viability of the business and aggregating the turnover of connected companies – were unhelpful or unclear. Some of those concerns were met with greater clarity on when personal guarantees and other security arrangements could be required or called upon.

This seems to have unblocked the jam. As of yesterday morning, more than 16,600 companies have received loans under the scheme, out of more than 36,000 applications. Most of these have been approved in the past eight days. The government says that more than £300 million is being lent every day on average, taking the total lent under the scheme to more than £2.8bn.

Nevertheless, the government is coming under pressure to create a further scheme aimed at the very smallest businesses. This would mean that loans to those businesses are 100% guaranteed by the government, making it even easier for lenders to approve loan applications. In contrast, loans under the current iteration of the CBIL are 80% guaranteed by the government and the remaining 20% is at the lender’s risk. It is reported this morning that a 100% guarantee extension of the CBIL for these small businesses could be announced imminently.

Coronavirus Large Business Interruption Loan Scheme

Designed to meet the needs of the “squeezed middle“, the CLBILS opened on Monday 20 April. It is open for any business with a turnover of more than £45 million. Those with a turnover from £45 million up to £250 million can be loaned up to £25 million; those with a turnover of over £250 million can be loaned up to £50 million.

Like the CBIL, applications for loans under the scheme must be made to an accredited lender. But unlike under the CBIL, borrowers are liable for all interest and fees, as well as repayment of the loan. The loan is to all intents and purposes a commercial loan at commercial rates of interest.

Some of the difficulties that applied to the CBIL are still relevant – such as the capacity of lenders to process applications and the viability test – and we discuss those here.

Covid Corporate Financing Facility

This was one of the earliest announced business support schemes but it quickly became apparent that the CCFF is only available to the largest, most financially secure businesses.

To be eligible, companies must “make a material contribution to the UK economy“. And they must already have – or must have been financially sound enough on 1 March 2020 to acquire – an investment grade rating from one of the major credit ratings agencies or from at least two banks.

Under the facility, the Bank of England will buy commercial paper – unsecured, short-term debt instruments – issued by an eligible business. Companies must apply for the facility via a bank.

 


  • Your usual Osborne Clarke contact is available to discuss any aspects of these schemes.
  • Finally, our Osborne Clarke Insights on the coronavirus and business are here.