All you need to know about the Government Funding Schemes for businesses

At Simplyhealth, we work with a variety of businesses, from small and medium-sized enterprises, such as dental and veterinary practices, to large corporate partners. We understand the importance of keeping up to date with correct and relevant information and the value of guidance, support and advice. In collaboration with our legal partner, Knights PLC, we've put together a suite of business resources to help you through this challenging time.

COVID-19: Government Funding Scheme for businesses

The government has introduced financial assistance packages to qualifying businesses as a result of the impact on the economy of Covid-19. Under the two primary schemes, more than £330 billion of loans and guarantees are now available. 

For SME's, the new Covid-19 Business Interruption Loan Scheme (CBILS) is to help any viable business with a turnover of up to £45m to access government-backed finance of up to £5 million. Interest payments and any lender-levied fees for businesses will be covered by the government for an initial period of up to twelve months. The scheme will operate such that the government will provide more than 40 accredited lenders with a guarantee of 80% on each facility to encourage them to lend. Details of the accredited Lenders can be found on the British Business Bank Website.

For larger firms, The Bank of England's new lending facility, the Covid Corporate Financing Facility (CCFF), is also open for applications. This scheme provides a quick and cost-effective way to raise working capital for those companies who do not qualify for the COVID-19 Business Interruption Loan Scheme. The business must be fundamentally financially strong but experiencing severe disruption to cash-flows as a result of coronavirus. 

What other support has the UK government announced for businesses? 

In addition to the CBILS and CCFF, the government has also increased the amount available under the Small Business Grant Fund and the Hospitality Leisure Grant Fund. These provide grant funding of £25,000 for retail, hospitality and leisure businesses with property with a rateable value between £15,000 and £51,000 but are not covered by this bulletin.

When are these facilities to be made available?

The facilities and grants have been available for application since Monday 23 March 2020. They're available solely to assist businesses to continue to trade through the global economic emergency brought on by Covid-19. 

What will the CBILS provide?

The facilities will comprise overdraft, term loans, invoice finance facilities and asset finance facilities. The key features of these facilities are as follows:

The scheme guarantees facilities up to a maximum of £5 million. It's available on repayment terms up to six years for term loans and asset finance and for up to three years for overdrafts and invoice finance facilities. The scheme provides an accredited lender with a government-backed 80% guarantee against the outstanding facility balance. There is no fee levied on the SME to access the scheme. As further support to the successful applicant of the scheme, the government will make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied fees. You (the SME) will, therefore, benefit from no upfront costs and lower initial repayments although fishery, aquaculture and agriculture businesses may not qualify for the full interest and fee payment.  

The scheme may be used for unsecured lending at the sole discretion of the lender for facilities of £250,000 and under. For facilities above £250,000, the scheme requires the lender to establish that the business is not able to provide security prior to businesses using CBILS. Primary residential property cannot be taken as security under the scheme, and as such, your lender should not require you to provide this if applying under the scheme. If the lender can offer finance on normal commercial terms without the need to make use of the scheme, they must do so. 

Please note: You must be aware that you, the borrower, will always remain 100% liable for the debt. The CIBLS guarantee is to the lender, not you, the SME.

Are you eligible and how to apply under the CBILS?

To apply, you will need to source an accredited lender. The main UK high street banks are all on the accredited list as well as other challenger banks, asset funders and other local lenders. It is advisable in the first instance as the process will be quicker to approach your current banker. Once a bank is selected, you would need to apply directly to them. Most now have a dedicated website for this purpose. It is the lender that makes the decision as to whether they proceed with a facility under the CBILS scheme. If the lender declines, this does not preclude you from applying with another accredited lender.

To be eligible, you must be able to demonstrate you have a viable business. If you were experiencing financial difficulties before the outbreak of the COVID-19, it is unlikely you will qualify under the scheme.

To qualify, you must:

• have a turnover of no greater than £45 million.

• be UK-based in your business activity

• have a borrowing proposal which the lender:
  • would consider viable, were it not for the COVID-19 pandemic; 
  • believes will enable you to trade out of any short-term to medium-term difficulty

What businesses are not eligible under the CBILS?

Businesses from any sector can apply, except the following (the Non Qualifying Sectors):

• Banks and building societies

• Insurers and reinsurers (but not insurance brokers)

• Public-sector organisations, including state-funded primary and secondary schools

• Employer, professional, religious or political membership organisations

• Trade unions

Is the scheme available for Start-ups? 

Possibly providing your business activity is primarily UK-based. For businesses in their first two years of trading, the British Business Bank's Start-Up Loans programme (loans £500 to £25,000 at 6% p.a. interest) may be more suitable. 

Do I need to show that I have a viable business? 

Yes. This is a critical factor of the scheme. Your application must demonstrate that were it not for the COVID-19 pandemic, your business would be considered as a viable going concern by the lender to the extent that the lender believes the provision of finance will enable your business to trade out of any short-to-medium term cash flow difficulty.

What's happening to the old Enterprise Finance Guarantee Scheme (EFG)? 

The EFG scheme has now been suspended. The appropriate way now is to apply subject to your eligibility under the CBILS with your lender or other accredited lenders.

Do you have an existing EFG Facility with your lender? 

If you have a query about an existing EFG facility, you should approach your current provider as soon as possible. It is still advisable to apply under the scheme at the same time as discussing the EFG Facility with your lender. You may also wish to consult with your current lender the refinancing of the current EFG Facility via the scheme.

How long will CBILS run for? 

The scheme will initially be open for application for six months from 23 March 2020. 

Will funds under the CBILS run out? 

No. The government has confirmed that the scheme will be demand-led, and as such, there is no immediate need to approach a lender if you do not need finance in the short-term. 

Are sole traders eligible for CBILS? 

Yes. You will need to demonstrate that the business activity is operated through a business account. The scheme is open to sole traders, freelancers, body corporates, limited partnerships, limited liability partnerships or other legal entity carrying out a business activity in the UK, with an annual turnover of up to £45m, unless you are a business operating in the Non Qualifying Sectors. You must be able to show that 50% of your turnover is generated from trading activity. 

Covid Corporate Financing Facility (CCFF) for larger firms not eligible for CBILS

Under the new Covid-19 Corporate Financing Facility, the Bank of England will buy short term debt from larger companies not eligible for the CBILS.

The CCFF will provide funding to businesses by purchasing commercial paper of up to one-year maturity, issued by firms making a material contribution to the UK economy to assist with their cash flows. To be eligible, you have to be able to demonstrate that you were financially sound in the period before the Covid-19 economic shock. The facility will offer financing on terms comparable to those prevailing in markets in the prior period. Eligibility will not be based on the current balance sheet and cash flows but on the firms' credit rating before the economic shock resulting from Covid-19. 

The scheme will operate for at least 12 months and will apply to businesses that make a material contribution to the UK economy.

What is commercial paper?

Commercial paper is an unsecured, short-term debt instrument issued by a company.  

The facility will purchase sterling-denominated commercial paper, with the following characteristics:

• Maturity of one week to twelve months

• Where available, a credit rating of A-3 / P-3 / F-3 / R3 from at least one of Standard & Poor's, Moody's, Fitch and DBRS Morningstar as at 1 March 2020.

• Issued directly into Euroclear and/or Clearstream 

The commercial paper will not be accepted by the Bank of England with non-standard features such as extendibility or subordination to name two.

Who can use the CCFF?

Companies and their subsidiaries that make a material contribution to the UK economy. The application is made by those companies through a bank.

Typically eligible firms would be those:

• UK incorporated companies, including those with foreign-incorporated parents and with a genuine business in the UK; 

• companies with significant employment in the UK; 

• firms with their headquarters in the UK. 

• Companies that generate significant revenues in the UK or serves a large number of customers in the UK or has several operating sites in the UK. 

What do I do if my company does not have a credit rating?

 Commercial paper issued by banks, building societies, insurance companies and other financial sector entities regulated by the Bank of England or the Financial Conduct Authority will not be eligible. CP will also not be eligible if issued by leveraged investment vehicles or from companies within groups which are predominantly active in businesses subject to financial sector regulation.

What does it mean to be in sound financial health?

The most precise way to demonstrate this test is to have, or acquire, a rating. For such firms, investment-grade means a short-term rating of A3/P3/F3/R3 or above, or a long-term rating of BBB-/Baa3/BBB-/BBB low or above by at least one of the major credit rating agencies.  

If firms have different ratings from different agencies, and one of those is below investment grade, then the commercial paper will not be eligible.

What do I do if my company does not have a credit rating?

In the absence of a current rating, the Bank of England guidelines suggest you liaise with your bank. If that bank's advice is that the firm was viewed internally as equivalent to investment grade as at 1 March 2020, then you should contact the Bank of England by email to discuss eligibility. The Bank of England will then, taking into account the view of your bank and other financial information you provide to them, make an assessment of whether you can be deemed as equivalent to having a public investment-grade rating. 

You could also request that your bank gets in touch with one of the major credit rating agencies to inform them that your company wishes to use the CCFF. That they seek an assessment of credit quality in a form that can be shared with the Bank of England and HM Treasury, noting that you are doing so because you wish to use the CCFF. 

Is this open to all firms and sectors?

All non-financial companies that meet the eligibility criteria can apply.

Do I need to have issued commercial paper before to use the facility? How do I set up a commercial paper programme?

You do not need to have issued commercial paper before using the CCFF. If you would like to use the CCFF and have not previously issued commercial paper, you should contact your bank. It is important to note that not all banks issue commercial paper. If your bank does not issue commercial paper, then we can assist in providing you with a list of those banks that can.

How much will I be able to sell?

The minimum size of an individual security that the CCFF will purchase from an individual participant is £1 million nominal. Offers are to be rounded to the closest £100,000.

How is the facility priced?

The facility will offer financing on terms comparable to those prevailing in markets in the period before the Covid-19 economic shock.

How long will the CCFF be in operation?

The Bank of England will operate the facility for at least 12 months. 

Further information

• Information on the Covid Corporate Financing Facility, including which lenders to contact, is available on Bank of England's website . Businesses can talk to their lenders from the start of the day about accessing these loans.

• Information on the Covid-19 Business Interruption Loan is available through the British Business Bank. Interest and fees on the loans will be paid by the government the first twelve months, making them interest-free to customers. This period may be shorter for firms in the fishery, aquaculture and agriculture sectors.