In September 2020, as part of the Government’s Winter Economy Plan, the Chancellor of the Exchequer announced the extension of various business support measures. The Coronavirus Business Interruption Loan Scheme (CBILS), the Coronavirus Large Business Interruption Loan Scheme (CLBILS), the Bounce Back Loan Scheme (BBLS) and the Future Fund (FF) (which is aimed at UK start-ups) were all extended to 30 November 2020 (Extension 1). Our previous articles detailing the schemes can be found here and here. Each scheme was initially open for six months, with CBILS and the FF due to close on 30 September 2020. At that time the chancellor had committed to putting together a new Government-backed loans programme which would launch in January 2021 (once the schemes had ended), however the likelihood of a second national lockdown (Lockdown No. 2) being announced in November due to a second wave of COVID-19 was quickly becoming a reality. These tougher restrictions would undoubtedly put more UK businesses under pressure without being able to access additional funding to stay afloat.
Rishi to the rescue
The Chancellor announced on 2 November 2020 that the Government would be further extending the application for each of CBILS, CLBILS and BBLS to the end of January 2021 (Extension 2) to help keep businesses affected by COVID-19 afloat during Lockdown No. 2 (which commenced on 5 November 2020). This extension (which also applies to the FF) will give businesses two extra months to make loan applications (from 30 November – the Extension 1 deadline). A deep sigh of relief from UK businesses could no doubt be heard for miles.
We’ll briefly summarise some of the main changes made to the schemes by each of Extension 1 and Extension 2 which could help businesses during this challenging time.
Initially, loans under CBILS were for a maximum term of six years, but lenders are now allowed to extend the term to up to ten years. This will reduce the required monthly repayments business would need to make after the first 12 months.
Both CBILS and CLBILS will benefit from more flexibility on the date of the test of whether or not their business is an “undertaking in difficulty” is assessed. In order to be eligible for these schemes, businesses previously had to demonstrate that they were not an “undertaking in difficulty”, a requirement under EU State aid law, as of 31 December 2019. The new guidance allows for this assessment to now be determined as at the date of application for the schemes. This flexibility means that businesses can take action to convert their debt to equity in order to qualify for the schemes, giving them the option to restructure their finances before applying in order to become eligible.
In order to offer greater flexibility, businesses which borrowed under BBLS now have new options to: (i) repay their loans over a period of up to ten years; (ii) move temporarily to interest-only payments (no repayment of principal) for six months which businesses will be able to do three times during the term of the loan; or (iii) request a full six-month payment holiday for both interest and principal once over the term of the loan, but this is only after the business has made six repayments.
Businesses which received loans via BBLS will now be able to top-up existing loans if they need extra/additional cash. This top-up will help businesses who have borrowed less than the maximum sum available (up to 25 per cent of their turnover up to a maximum of £50,000) in order to avoid them having to take on extra debt. As of 10 November 2020, businesses can request top-ups from their existing BBLS lender, but they are only allowed to do so once.
In order to be eligible for a top-up, a short form application (which is available from the BBLS lenders) will need to be completed. The form will require businesses to set out the amount of top-up requested and re-provide certain declarations which were set out in the original BBLS application form. For further details, please see the BBLS page on the British Business Bank’s (BBB) website here.
HM Treasury figures published on 19 November 2020 set out that nearly 1.5 million UK businesses have been supported through the Government lending schemes during the COVID-19 pandemic. The latest figures show BBLS supporting almost 1.4 million small businesses, CBILS supporting over 77,900 businesses and CLBILS supporting 658 businesses. The amount of convertible loans approved under the FF is currently 874.
Is it all sweetness and light, though? With the top-up now on offer from BBLS, which will inevitably throw a lifeline to many struggling businesses during Lockdown No. 2, there have been several calls in the market for more BBLS lenders to open to new customers. Several of the banks eligible to issue BBLS loans have closed to new customers leaving businesses unable to apply for funding or a top-up despite being eligible. BBLS has come under fire from both the all-party parliamentary group for fair business banking (APPG) and the Federation of Small Businesses with both groups stressing the importance of accredited BBLS lenders taking on new customers and providing struggling businesses with access to much-needed funding. The BBB was less helpful stating that “lending decisions under BBLS are fully delegated to the accredited lenders.If a lender does not have the capital to support continued funding of new BBLS or top-up BBLS, the BBB is not in a position to force them to lend.”
Another issue is that non-bank lenders cannot access cheap funding available from the Bank of England’s (BoE) term funding scheme (TFS), meaning they cannot afford to offer BBLS loans (or top-ups) to their customers. Therefore, unless non-bank lenders can secure private investment or get access to the TFS, many small businesses could be prevented from accessing BBLS funding as most of the accredited BBLS lenders (which do have access to the TFS) are not accepting new customers (as stated above). The APPG have recognised that this is an issue that needs to be resolved as soon as possible.
Many UK businesses could not have anticipated that the effects and the disruption caused by the COVID-19 pandemic would continue for this long. The Government’s welcome extensions to the lending schemes (especially the BBLS top-up) mean that these businesses are able to benefit from these schemes as it was intended. However, whether businesses will truly be able to access BBLS funding and take advantage of the top-up from their existing BBLS lenders to get through these next few months remains to be seen. Winter, after all, is coming.
 The TFS is aimed at providing liquidity for small business lending, which makes it easier for banks to borrow cash to fund BBLS loans, which come with a flat interest rate of 2.5 per cent. Non-bank lenders (lenders which do not take deposits) are not able to access the TFS.
If you require further information about anything covered in this briefing, please contact Suzanne Conticelli, or your usual contact at the firm on +44 (0)20 3375 7000.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, November 2020