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Advice

Various funding support has been offered to businesses to assist during this challenging period.

A summary of the various facilities to be made available is set out on the government's website – but note that this contains links through to Bank of England and British Business Bank which adds, in certain cases, a further level of eligibility criteria. Caution should be taken in the interpretation ‘all UK businesses are eligible’ because that is not strictly true.

The Bank of England’s advice is that in a vast majority of cases the best port of call for businesses is to speak with their existing bank or finance provider – rather than contacting Bank of England or British Business Bank.

In terms of the specific funding options:

Support for businesses through the Coronavirus Business Interruption Loan Scheme

This will be accessed via usual banks/finance providers. It is a new temporary Coronavirus Business Interruption Loan Scheme, delivered by the British Business Bank, but accessed and managed through usual banks/finance providers.

Please follow link to FAQ’s as more information is released. 

It will launch early next week to support primarily small and medium-sized businesses to access bank lending and overdrafts.

It will work through the government providing lenders with a guarantee of 80% on each loan (subject to a per-lender cap on claims) to give lenders further confidence in continuing to provide finance to SMEs. The government will not charge businesses or banks for this guarantee, and the scheme will support loans of up to £5 million in value.

Businesses can access the first 12 months of that finance interest free, as government will cover the first 12 months of interest payments.

Note that the borrower always remains 100% liable for the debt.

The forms of facilities to be made available are likely to be:

  • Term facilities
  • Overdrafts
  • Invoice finance facilities
  • Asset finance facilities

Finance terms are from three months up to ten years for term loans and asset finance and up to three years for revolving facilities and invoice finance.

Eligibility

Business will be eligible for the scheme if:

  • The business is UK based, with turnover of no more than £45 million per year
  • The business meets “other British Business Bank eligibility criteria”

This is still to be determined in full but currently to be eligible for support, the small business must:

  • Operate within an eligible industrial sector - a small number of industrial sectors are not eligible for support or subject to limitations – read more
  • Comply with the eligibility criteria set out here.

How to access the scheme

The full rules of the scheme and the list of accredited lenders will be available on the British Business Bank website

All the major banks will offer the Scheme once it has launched. There are 40 accredited providers in all.

Businesses should talk to their bank or finance provider (not the British Business Bank) as soon as possible and discuss their business plan with them. This will help the finance provider to act quickly once the Scheme has launched. If the business has an existing loan with monthly repayments the businesses may want to ask for a repayment holiday to help with cash flow.

The scheme will be available from early next week commencing 23 March.

The British Business Bank have stated a disclaimer that they are “in the process of defining and agreeing the scheme’s details, specifications and eligibility and therefore information is subject to change.” They will be updating their webpages to reflect any changes as and when they are published.

Support for larger firms through the COVID-19 Corporate Financing Facility

This is investment directly from the Bank of England. Under the new COVID-19 Corporate Financing Facility, the Bank of England will buy short term debt from very large companies. 

This is to assist businesses affected by a short-term funding squeeze, and is to assist in funding short-term liabilities.

The funding is made available through the company issuing commercial paper. The borrower is an ‘issuer’, the Bank of England (acting via Covid Corporate Financing Facility Limited) will purchase the commercial paper.

This funding mechanism is quite rigidly structured to ensure it does not fall foul of financial regulations.

The funding is short term (less than a year) and to companies in generally a very strong financial position immediately prior to this period – the debt is unsecured. 

Eligibility

The government website suggests that “all UK businesses are eligible”. However, if you flow through the links to the Bank of England – this is misleading.  

In reality it is centered around FTSE 100 who issued investment grade type paper.

Which businesses are deemed eligible (eligible issuers) will be made on a case by case basis by the Bank of England taking into account a number of different factors (whether the relevant company has significant employment in the UK or its headquarters in the UK and other factors such as its revenues in the UK, whether it serves a large number of customers in the UK or has a number of operating sites in the UK).

The guidance states that companies that do not currently issue commercial paper but ‘are capable of doing’ would be eligible.  However, it is likely that this could be a time consuming process to establish the commercial paper programme for that business. 

Covid Corporate Financing Facility Limited will also invest in the secondary market, i.e. where large firms already undertake this sort of financing, the government will invest, provided that the existing structure is eligible and fits the criteria below.

The commercial paper issued (i.e. the terms of the loan) must be sterling-denominated commercial paper from eligible issuers provided that it has certain characteristics:

  • A maturity of one week to 12 months if issued to the BoE at issue via a dealer;
  • Where available, the issuer should have a minimum short-term credit rating of A-3 / P-3 / F-3 from at least one of Standard & Poor’s, Moody’s and Fitch as at 1 March 2020;
  • Where a short-term credit rating is not available, the BoE will consider whether a long-term credit rating can be used to assess eligibility and pricing, or whether the BoE can assess that the issuer is of equivalent financial strength;
  • Issued directly into Euroclear and/or Clearstream.

Even if these conditions are met, the Bank of England may not approve eligible commercial paper which has certain features which are deemed non-standard (for example extendibility, subordination and so forth).

Note that the Bank of England may look to relax some of the criteria above over the coming days/weeks.  That said (a) this form of funding is subject to certain mandatory provisions on the structuring to ensure they stay inside the parameters of regulation (b) because of the nature of the facility (to generally financially strong large businesses with a rating) the standard documentation is very light and the debt is unsecured – so it is unlikely to be amended significantly in terms of which companies are eligible.  

How to access the scheme

The scheme will be available early in week beginning 23 March 2020.

More information will be made available from the Bank of England.

Cash grants for retail, hospitality and leisure businesses

The Retail and Hospitality Grant Scheme will provide businesses in the retail, hospitality and leisure sectors with a cash grant of up to £25,000 per property.

For businesses in these sectors with a rateable value of under £15,000, they will receive a grant of £10,000.

For businesses in these sectors with a rateable value of between £15,001 and £51,000, they will receive a grant of £25,000.

Eligibility

Businesses will be eligible for a grant if they are:

  • Based in England
  • In the retail, hospitality and/or leisure sector

Properties that will benefit from the relief will be occupied hereditaments that are wholly or mainly being used:

  • As shops, restaurants, cafes, drinking establishments, cinemas and live music venues
  • For assembly and leisure
  • As hotels, guest and boarding premises and self-catering accommodation

Access the scheme

Businesses do not need to do anything. The relevant local authority will write to the business who are eligible for this grant.

Enquiries on eligibility for, or provision of, the reliefs and grants should be directed to the relevant local authority. However, there is still guidance to be provided to local authorities on the scheme so it may take time for the grant to actually be provided.

For further information please contact Patricia Grinyer at patricia.grinyer@weightmans.com or by telephone on +44 (0)777 259 3574. 

This article was last edited on 23 March 2020, due to updated information provided from British Business Bank urgent update. 

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