FAQs for Businesses: Coronavirus Large Business Interruption Loan Scheme (CLBILS)

Is this new scheme just expanding CBILS, itself a rebadged Enterprise Finance Guarantee, to cover larger companies?

What’s the purpose of the scheme?

What are the parameters of the new scheme?

What is the timeframe for repayment of a facility under the CLBIL Scheme?

What is the total size of funding being offered?

Is CLBILS a loan or a grant scheme?

How long are CLBILS available for?

Is there a minimum facility size?

How do businesses apply?

What is the treatment of dividends or other shareholder payments under this scheme?

Who qualifies as senior management?

Why are you requiring a senior ranking for lending under CLBILS?

Do facilities and their associated security have to rank senior?

When you discuss “relevant collateral” in the context of seniority, what do you mean by this?

What is meant by a “financing vehicle”?

How will lenders’ processes with potential borrowers differ for loans under CLBILS?

Can Personal Guarantees be taken under the scheme?

What will be the situation if lending is by a syndicate of lenders, not all of which are accredited?

What fees does government receive from lenders on CLBILS?

Can you clarify what you mean when you say any economic benefit must be passed to the borrower?

Are there any circumstances in which a facility is not actually covered by the CLBIL Scheme guarantee?

What sort of businesses is CLBILS for?

Are all businesses able to use the scheme?

If a business is receiving other kinds of aid to help respond to COVID-19 can they still use the scheme?

In instances where an applicant is a member of a group that contains another member who has applied to CCFF. Is this applicant eligible to apply to CLBILS?

What are the main changes to CLBILS from 26 May 2020?

Following the changes made with effect from 26 May 2020, do facilities in excess of £50m have additional eligibility criteria that apply to them?

Do the dividend and pay restrictions apply to the group or just the applicant borrower?

What is “turnover“ for the purpose of checking eligibility for CLBILS?

What is a “sole enterprise”?

What is a “linked” business?

What is a “partner” business?

What sectors can access the scheme?

What is the proposed treatment of private equity/venture capital companies which may hold a controlling stake in several companies, do these need to be combined to calculate eligibility for CLBILS, and does this mean that only one facility can be taken out in this situation?

Can you define what you mean by a private equity or venture capital firm?

Are financial services firms eligible for CLBILS?

Are membership organisations eligible for CLBILS?

Are housing associations eligible for CLBILS?

Are housebuilders eligible?

Are borrowers that are owned (in part or in full) by Sovereign states eligible?

Are public-sector organisations eligible for CLBILS?

Are borrowers which are subsidiaries of public sector entities eligible?

Are further education establishments (including sixth form colleges and vocational training establishments) eligible?

Are charities eligible?

What do you mean by a business based in the UK?

If a company with UK employees exports over 80% of its services, does this class as a UK business activity?

Are exporters eligible?

Is a business based overseas eligible?

If a business in the UK has an overseas parent can the UK business apply for CLBILS, would the parent need to provide a parental guarantee?

Can a borrower refinance their existing EFG Facility to a CLBILS Facility?

Is there a requirement to be State aid compliant and how will this be managed?

What State aid clearance does CLBILS have?

How do I know if a company has received rescue aid or restructuring aid?

What is the guidance on businesses/undertakings in difficulty, can the government be more flexible on this in the current circumstances?

Can a borrower self-certify that it is not a business/undertaking in difficulty?

Which businesses meet the “business in difficulty”/ “undertaking in difficulty” criteria?

What type of businesses will be captured by the business in difficulty definitions – high growth and thinly capitalised companies?

What does it mean for a business to have accumulated losses greater than half of their capital?

What is “share capital”?

What are “reserves”?

What is “capital” for companies with unlimited liability?

What are “collective insolvency proceedings”?

What does the definition of “collective insolvency proceedings” mean from a practical perspective?

What is the interpretation of “fulfils the criteria under its domestic law for being placed in collective insolvency proceedings”?

What solvency ratios must a company, that is not an SME (because it has 250 or more employees), meet to not be “in difficulty”?

Should the tests for a “business/undertaking in difficulty” be on an individual or group basis?

What is the EU law concept of an undertaking?

How quickly can applicants expect to receive the funds?

Will you require extra resource to deliver such a large and complex package?

How many applications are expected from launch and how long is it going to take to work through them all?

Have banks/lenders agreed to use the scheme?

 

Policy objective/scope

Is this new scheme just expanding CBILS, itself a rebadged Enterprise Finance Guarantee, to cover larger companies?
No. The Coronavirus Large Business Interruption Loan Scheme (“CLBILS”) is a part of Government support which covers mid-cap and larger businesses and is a new Scheme. It fits ‘above’ CBILS in terms of company turnover and offers a different set of terms designed for mid-cap and larger companies. Larger businesses can borrow up to £200m under this scheme.

To enable rapid deployment we are, however, using the infrastructure and delivery mechanisms that supports CBILS (and previously supported EFG).

The Government has decided to introduce this intervention on a temporary basis, for businesses that are impacted by Covid-19.

What’s the purpose of the scheme?
CLBILS has been introduced as a temporary measure with the aim of supporting the continued provision of finance to UK mid-cap and larger enterprises with turnover in excess of £45 million during the COVID-19 outbreak.

Compared to the British Business Bank’s typical SME-focused schemes, it has broader aims as well as a different remit in covering larger companies.

Unlike ‘business as usual’ schemes, certain requirements have been dropped, in order to accommodate some of the expected knock-on impacts of Covid-19 on businesses.

Alongside CBILS for SMEs and the Bank of England’s CCFF for large companies, CLBILS is designed to provide lenders with more confidence and additional flexibility to continue lending to UK enterprises in this period of real uncertainty. Borrowers will remain 100% liable for repayment of any facility supported by CLBILS.

Finance provided can include loans, asset finance facilities, revolving credit facilities (including overdrafts) and invoice finance facilities lasting from three months up to three years.

Together, CLBILS, CBILS, BBLS and CCFF offer support to UK enterprises across the spectrum from the smallest to largest. Larger companies can elect to apply for assistance via CLBILS, BBLS or via CCFF depending on their requirements and subject to eligibility.

What are the parameters of the new scheme?
CLBILS has been designed to be attractive to both businesses and lenders.

Businesses will still be 100% responsible for paying the facility back, and interest and fees charged by the lender.
Accredited lenders making use of the scheme will pay a small fee in order to benefit from a partial (80%) government guarantee on each CLBILS facility. Fees for lenders under the scheme will vary according to the length of the facility.

Under CLBILS, the government has made money available to support lending through the scheme of up to £200m. In each case the amount borrowed should be a maximum of the higher of:

(i) double the annual wage bill in respect of the United Kingdom business of the borrower (including social charges as well as the cost of personnel working on the undertaking’s site but formally in the payroll of subcontractors) for 2019;
(ii) 25% of the total turnover of the borrower’s UK business in 2019; or
(iii) with appropriate justification and based on self-certification of the borrower of its liquidity needs, an amount to cover the liquidity needs of the UK business for the 12 months following the granting of the relevant facility, or such other amount as is notified to the Lender by the Guarantor from time to time.

What is the timeframe for repayment of a facility under the CLBIL Scheme?
All facilities will be repayable within three years.

What is the total size of funding being offered?
The total capacity of the scheme will depend on demand. At his press conference on 18 March, the Chancellor confirmed that he would “do whatever it takes” to get businesses through the current epidemic.

Is CLBILS a loan or a grant scheme?
CLBILS is a loan (and other debt facility) guarantee scheme designed to enable more finance to UK businesses by providing a guarantee to accredited lenders. Businesses will still have to repay the loan or facility.

The scheme forms part of a wider package of support for businesses announced by the Government, which does include grants for other purposes, although these are not delivered through the British Business Bank.

How long are CLBILS available for?
The Scheme went live on Monday 20 April 2020 for an initial period of 6 months. The Scheme has now been extended to 30 November 2020.

Is there a minimum facility size?
Minimum facility size is £50,000.

How do businesses apply?
Businesses should check on our accredited lenders webpage for which lenders are able to provide the type of finance they are looking for

Note:Not every accredited lender can provide every type of finance listed.
In the first instance, businesses should approach their own provider – ideally via their relationship manager or via the lender’s website. They may also consider approaching other lenders if they are unable to access the finance they need.

What is the treatment of dividends or other shareholder payments under this scheme?
Government believes that it is very important to help businesses of all sizes during this unprecedented situation. However, businesses with turnover of over £45m are likely to be long established ones with a strong customer base and well-developed access to finance. For facilities of up to £50m Government believes that allowing dividend payments to continue but not to be increased for as long as any facility under CLBILS remains outstanding represents a reasonable balance between taxpayer and shareholder interests during the relatively short (maximum three year) life of the facility.

For groups seeking loans greater than £50m in aggregate there are different eligibility criteria in place regarding dividends and other shareholder and management payments:

  • Until the facility has been repaid in full, borrowers and members of their group cannot pay any cash bonuses to senior management, or award any pay rises to senior management except where such pay rise was (i) agreed in writing before the facility was taken out, or (ii) is in keeping with similar payments made in the preceding 12 months, and (iii) does not have a material negative impact on the borrower’s ability to repay the facility. The restriction does not need to apply to pay awards or cash bonuses to be paid to new members of senior management joining the group after the date of the facility but must apply to any subsequent cash bonuses or pay rises awarded to such persons after they have joined the group.
  • Until the facility has been repaid in full, the borrower must agree that it and each member of its group will not (i) declare, make or pay any dividend, charge, fee or other distribution (or interest on any unpaid dividend, charge, fee or other distribution) (whether in cash or in kind) on or in respect of its share capital (or any class of its share capital) or, if it is a partnership, any equivalent payment to its partners; (ii) repay or distribute any dividend or share premium reserve; (iii) pay or allow any member of its group to pay any management, advisory or other fee to or to the order of any of the shareholders (or if the borrower or such member of its group is a partnership, partners) of the borrower or such member of its group; or (iv) redeem, repurchase, defease, retire or repay any of its share capital or resolve to do so. The restriction will not apply to any payment: (i) falling within the above which is paid by one member of the borrower’s group to another member of the borrower’s group (for the avoidance of doubt, excluding any payment to any partner enterprise or linked enterprise of the borrower that is a private equity or venture capital entity); (ii) that is a de minimis share buyback from an employee (other than to a member of senior management) upon such employee retiring or ceasing to be employed by the group; or (iii) of any dividend or distribution declared prior to the entry by the borrower into the facility.

Who qualifies as senior management?
Senior management is considered to include:

  • members of the Board;
  • those classed as directors or senior managers of the company under s.414C of the Companies Act 2006;
  • those captured by the SMR under Part V of the Financial Services and Markets Act 2000; and
  • employees below board level for whom the levels of remuneration or the risks associated with the activities involved are material to the relevant group member’s overall performance.

Why are you requiring a senior ranking for lending under CLBILS?
Lending under CLBILS will not be subordinated to any other senior obligations (including secured and/or super-senior obligations, if any) of the borrower, subject to carve-outs for asset finance and invoice finance. The government believes that this is an appropriate approach to take to ensure that taxpayer interests are suitably protected when providing guarantees for these significant facilities to mid-cap and large businesses which tend to have more complex capital structures. CLBILS is designed to provide temporary assistance to businesses that are suffering disruption to their cashflow due to lost or deferred revenues during the Covid-19 outbreak. In this situation existing lenders to a business will need to be willing to accept a temporary dilution to their own seniority reflecting this generous assistance from the government.

Do facilities and their associated security have to rank senior?
Except in respect of a residential development facilities, CLBILS facilities must at all times during its life, rank on at least a pari passu basis with the most senior obligations (including secured and/or super-senior obligations, if any) of the Borrower. This includes from all collateral taken by any lender from the borrower unless the borrower is a financing vehicle, whereby this will include any collateral from any member of its Group.

There are certain carveouts from this requirement including collateral:

1. with an aggregate value not greater than 10% of the value (determined by the lender in accordance with its lending policies) of all relevant collateral, and
2. relating to asset and invoice finance facilities entered into in the ordinary course of business where the proceeds of such collateral would not be available to facilities other than such asset or invoice finance facility and where the lending policies and procedures would not require it to take security over such collateral.
Borrowers must not enter into any facility after the date of the CLBILS facility that ranks senior to the facility or that has the benefit of collateral, other than as set out above.

In respect of facilities used to fund the creation of residential property situated in the United Kingdom, the facility must benefit at all times during its life on at least a pari passu basis with the most senior obligations (including secured and/or super-senior obligations, if any) in respect of such development; from all collateral forming part of the relevant development; and from all further collateral that the lender would take in accordance with its policies.

Lenders and borrowers must not conspire to circumvent the spirit of the above by seeking to structure around these requirements or act out of context of their normal business practices.

When you discuss “relevant collateral” in the context of seniority, what do you mean by this?
Relevant collateral is defined as all security collateral that has been taken by any lender from the borrower at such time to support any one or more borrowing facilities of the borrower with any lender. If the borrower is a financing vehicle, this needs to be assessed on a group basis.

What is meant by a “financing vehicle”?
A financing vehicle is considered to be an entity established primarily for the purpose of owning a specific asset or related assets and raising finance in connection with those assets on a basis segregated from other assets and liabilities of the other members of the financing vehicle’s group.

How will lenders’ processes with potential borrowers differ for loans under CLBILS?
Lenders will be required to pass on the economic benefit of the government guarantee under CLBILS to borrowers. Lenders are expected to make their decision on a loan under CLBILS in the same way as they normally would for a similar loan were it not CLBILS related, including in respect of origination, servicing, enforcement and the use of market standard terms and documentation. The documentation will also reflect the restriction required under CLBILS around dividends and share buy backs and, for loans over £50m, management pay.

Can Personal Guarantees be taken under the scheme?
We would expect a lender to follow its normal credit policy when assessing additional security generally. No personal guarantees will be permitted for facilities under £250,000. For facilities of £250,000 and over, claims on personal guarantees applied to the scheme facility cannot exceed 20% of losses on the scheme facility after all other recoveries have been applied.

What will be the situation if lending is by a syndicate of lenders, not all of which are accredited?
A syndicate of accredited and non-accredited lenders is permissible; however, the guarantee will only be available to the accredited members. For example, if a £40m loan is shared equally between four lenders, one of which is not accredited, £24m (80% of the £30m from accredited lenders) would be covered by the CLBILS guarantee.

Lenders must not enter into any arrangement to share or pass on, directly or indirectly, amounts received by it under CLBILS guarantees to other members of the syndicate.

It is expected that accredited lenders would have to structure the syndication in order to ensure that the pricing benefits are passed through to a borrower. Provided that each accredited lender prices in line with its CLBILS pricing policy, then that would be acceptable notwithstanding that, on a blended basis, the resultant interest rate payable by the borrower may be higher.

What fees does government receive from lenders on CLBILS?
Lenders will pay government a fee in respect of each facility based on the principal amount of the facility multiplied by a margin of between 50bps and 100bps depending on the term of the facility. In certain circumstances, if a debt restructuring is permitted, a Lender may have the ability to extend the facility for up to a maximum six-year term, in which case the applicable margin will be 200bps from years four to six. It is expected that the fees will be reflected in the overall borrowing costs incurred by the borrower.

Can you clarify what you mean when you say any economic benefit must be passed to the borrower?
The lenders will benefit from the reduced risk on their facility that results from the 80% government guarantee, as well as from the capital relief they may receive on CLBILS facilities. The resultant savings to the lender must be passed on to the borrower through a proportionate reduction in pricing; the expectation is that the interest rate the lender can charge (after taking into account scheme costs) is reduced as a result of the CLBILS guarantee.

Are there any circumstances in which a facility is not actually covered by the CLBIL Scheme guarantee?
There are limited circumstances in which this can occur. These include where (i) a Lender has either breached its obligations relating to its standard of care under the CLBIL Scheme Guarantee Agreement or acted fraudulently in participating in the CLBIL Scheme or a related CLBIL Scheme Facility; or (ii) a CLBIL Scheme Facility does not comply with the eligibility criteria as at the date it is offered by the Lender or (in the case of the eligibility criteria relating to drawdown) the CLBIL Scheme Facility has not been drawn or made available (as applicable) within 6 months of the relevant CLBIL Scheme Facility Letter.

Eligibility criteria

What sort of businesses is CLBILS for?
CLBILS is designed to support mid cap and larger businesses (i.e. with an annual turnover of over £45m).

The scheme is intended to include businesses where there are short-to-medium term performance issues due to adverse impacts of the Coronavirus, but lending can only be agreed where a lender reasonably believes (a) the finance will help them trade out of any short-to-medium term cashflow difficulties, and (b) if the facility is granted, the borrower is not expected to go out of business in the short-to-medium term.

Larger businesses opting to participate in the Bank of England’s CCFF scheme are not eligible for CLBILS.

Are all businesses able to use the scheme?
No. CLBILS is only usable by businesses with turnover in excess of £45m (the ceiling for the government’s CBILS programme) that have not utilised the Bank of England’s CCFF programme or received funding under either of BBLS or CBILS.

If a business is receiving other kinds of aid to help respond to COVID-19 can they still use the scheme?
Other than CCF, CBILS or BBLS, yes. The eligibility criteria for CLBILS does not require Lenders to take into account the other forms of government support that businesses may be benefiting from e.g. the Coronavirus Job Retention Scheme, business rate reliefs or grants unrelated to the CLBIL scheme. The only exception to this is that companies may not utilise both CLBILS and any of BBLS, CBILS and the Bank of England’s CCFF facility for large investment grade companies.

In instances where an applicant is a member of a group that contains another member who has applied to CCFF. Is this applicant eligible to apply to CLBILS?
No, we look at the group of the applicant.

What are the main changes to CLBILS from 26 May 2020?
On 26 May the Government made a number of changes to CLBILS designed to make the scheme more generous to businesses. Eligible borrowers can borrow up to a maximum facility of £200m. This replaced previous limits of up to £25m for businesses with group turnover up to £250m and £50m for businesses with higher turnover.

For facilities in excess of £50m some additional eligibility criteria apply, as discussed below.

Following the changes made with effect from 26 May 2020, do facilities in excess of £50m have additional eligibility criteria that apply to them?
For groups seeking facilities in aggregate in excess of £50m (the CLBILS variant announced on 19 May), the scheme’s eligibility requirements include some additional commitments from borrowers reflecting the additional commitment being made by Government:

Until the facility has been repaid in full, borrowers and members of their group cannot pay any cash bonuses to senior management, or award any pay rises to senior management except where such pay rise was (i) agreed in writing before the facility was taken out, or (ii) is in keeping with similar payments made in the preceding 12 months, and (iii) does not have a material negative impact on the borrower’s ability to repay the facility. The restriction does not need to apply to pay awards or cash bonuses to be paid to new members of senior management joining the group after the date of the facility but must apply to any subsequent cash bonuses or pay rises awarded to such persons after they have joined the group.

Until the facility has been repaid in full, the borrower must agree that it and each member of its group will not (i) declare, make or pay any dividend, charge, fee or other distribution (or interest on any unpaid dividend, charge, fee or other distribution) (whether in cash or in kind) on or in respect of its share capital (or any class of its share capital) or, if it is a partnership, any equivalent payment to its partners; (ii) repay or distribute any dividend or share premium reserve; (iii) pay or allow any member of its group to pay any management, advisory or other fee to or to the order of any of the shareholders (or if the borrower or such member of its group is a partnership, partners) of the borrower or such member of its group; or (iv) redeem, repurchase, defease, retire or repay any of its share capital or resolve to do so. The restriction will not apply to any payment: (i) falling within the above which is paid by one member of the borrower’s group to another member of the borrower’s group (for the avoidance of doubt, excluding any payment to any partner enterprise or linked enterprise of the borrower that is a private equity or venture capital entity); (ii) that is a de minimis share buyback from an employee (other than to a member of senior management) upon such employee retiring or ceasing to be employed by the group; or (iii) of any dividend or distribution declared prior to the entry by the borrower into the facility.

Lenders wishing to offer CLBILS facilities for an amount greater than £50m will need additional accreditation. The lender will generally be expected to have permission to use the Internal Ratings Based (IRB) approach, approved for corporate lending at this scale.

Lenders wishing to offer CLBILS facilities for an amount, in aggregate, greater than £50m to any borrower or borrower group, will need to notify the British Business Bank in advance of agreeing any facility.

Do the dividend and pay restrictions apply to the group or just the applicant borrower?
The restrictions apply to the applicant borrower’s group. Please note the different treatment for private equity or venture capital owned businesses discussed below.

What is “turnover“ for the purpose of checking eligibility for CLBILS?
If it is a sole enterprise it is the turnover of the applicant only, as shown in the latest set of accounts. For applicants acting as part of a group, that have partners or linked enterprises, the turnover assessment should take the latest turnover of the applicant, as shown in their accounts, together with the turnover of any linked enterprises, any partners of any linked enterprises, any enterprises linked to any of the applicant’s partners and any enterprise linked to the applicant’s linked companies.

Please note the different treatment for businesses owned by private equity or venture capital entities.

What is a “sole enterprise”?
A sole business (for the purposes of CLBILS) is one that holds no more than 25% of the capital or voting rights (whichever is higher) in one or more other businesses; and/or other businesses hold no more than 25% of the capital or voting rights (whichever is higher) in them; or it is not linked to another business according to the criteria for “linked enterprises”.

In addition, certain investors may individually have a stake of up to 50% in the business and it may still be considered a sole business: public investment corporations, venture capital companies[1] and business angels[2] (provided the investment is less than €1.25 million), universities and non-profit-making research centres, institutional investors, (including regional development funds),or autonomous local authorities (with an annual budget of less than €10 million and fewer than 5,000 inhabitants).

What is a “linked” business?
Linked businesses form a group by controlling the majority of voting rights of an enterprise, either directly or indirectly; or being able to exercise dominant influence over an enterprise.

Enterprises are linked when one holds a majority of the shareholders’ or members’ voting rights in another; or can appoint or remove a majority of the other’s administrative, management or supervisory body; or there is a contract between them enabling one to exercise a dominant influence over the other; or one can exercise sole control over a majority of shareholders’ or members’ voting rights in another. A typical example is a wholly owned subsidiary.

An enterprise is indirectly linked to a business if it is directly linked to an enterprise that is linked directly to the business.

What is a “partner” business?
A “partner” business is an enterprise that has certain financial partnership with another, without one exercising effective direct or indirect control over the other. They are not sole enterprises or linked enterprises.

This is the case where both hold 25% or more of the capital or voting rights in each other; and are not linked to other enterprises. Among other things, their voting rights in each other do not exceed 50%.

What sectors can access the scheme?
CLBILS is open to eligible businesses operating in all sectors[3].

To be eligible, the applicant’s businesses activities must be UK based, must generate more than 50% of turnover from trading activity, and the applicant must have turnover of more than £45m per year.

What is the proposed treatment of private equity/venture capital companies which may hold a controlling stake in several companies, do these need to be combined to calculate eligibility for CLBILS, and does this mean that only one facility can be taken out in this situation?
Any company with a private equity or venture capital backer (even where the backer has a dominant stake) will be treated as a separate company for the purposes of assessing turnover. This means this if the individual company’s turnover is below £45m they should be eligible for CBILS. If the individual company has a turnover over £45m they are in CLBILS.

In addition, each of these separate companies should be eligible to a separate facility (of £5m in CBILS and up to £200m in CLIBILS).

Can you define what you mean by a private equity or venture capital firm?
Private Equity/Venture Capital firms are considered for this purpose to be an entity, including an early-stage or venture capital investor, whose primary business strategy consists in the raising of funds from private and institutional investors. The purpose of the fund raise is to make medium to long term equity investments in businesses that are not, or will not after such investment be, publicly quoted. Alongside such investment, the firms provide active management, commercial acumen and guidance in order to build and develop such businesses.

Are financial services firms eligible for CLBILS?
In principle they are eligible, including non-bank financial institutions, (secured and unsecured lenders); FCA-regulated financial intermediaries (such as credit brokers, finance houses, equipment renting/leasing businesses, financial intermediation firms); and firms that offer independent financial advice/services on financial matters (for instance accountants, auditors, mortgage brokers).

However, deposit-taking banks, building societies and insurers writing contracts of insurance as principal are not eligible for CLBILS.

Are membership organisations eligible for CLBILS?
Business, employer, professional, religious or political membership organisations or trade unions are in principle eligible.

Are housing associations eligible for CLBILS?
Housing associations are in principle eligible under the Scheme (provided that they satisfy the other eligibility criteria of the Scheme).

Are housebuilders eligible?
Yes, companies and sole traders that develop houses are in principle eligible for CLBILS.

Some developers ring-fence their developments in separate companies or special purpose vehicles (“SPVs”), this doesn’t preclude them being eligible to borrow under CLBILS.

A CLBILS lender may look to the applicant’s group to determine whether more than 50 per cent of the income of the group is derived from trading or commercial activities.

An applicant’s group may be determined by the lender in the same way as it determines the “group” under 34 below. For example if a property developer develops property through an individual SPV but has dominant control over the SPV (for example, it holds a majority of shares in the SPV, or has directors in common with the SPV), the lender may look at the overall Group’s history to assess trading income.

Are borrowers that are owned (in part or in full) by Sovereign states eligible?
If the borrower is a commercial entity operating for profit then it is, in principle, eligible.

Are public-sector organisations eligible for CLBILS?
If the organisation is classified as a public-sector organisation by the Office of National Statistics, it is not eligible for CLBILS.

Are borrowers which are subsidiaries of public sector entities eligible?
If the borrower is not classified as public sector by the ONS then they are, in principle, eligible.

Are further education establishments (including sixth form colleges and vocational training establishments) eligible?
Further education establishments are in principle eligible if they satisfy the other eligibility criteria of CLBILS.

Note: Further education establishments are exempt from the requirement that 50% of the applicant’s income must be derived from its Trading Activity.

Are charities eligible?
Charities are in principle eligible if they satisfy the other eligibility criteria of CLBILS.

Note: Registered Charities are exempt from the requirement that 50% of the applicant’s income must be derived from its Trading Activity.

What do you mean by a business based in the UK?
To be eligible a business must be trading in the United Kingdom and have the core of its business operations in the United Kingdom. A person will not be carrying on a business in the UK solely by selling into, or trading with a person in, the UK.

If a company with UK employees exports over 80% of its services, does this class as a UK business activity?
Yes, it does. This would be a UK trading activity even if the company’s income comes wholly or mainly from exporting.

Are exporters eligible?
Export businesses are in principle eligible and welcome into the scheme.

Is a business based overseas eligible?
A business which is foreign-owned is in principle eligible to apply for CLBILS, provided it is trading in the UK (not just selling into the UK, and has the core of its business operations in the UK) and uses the CLBILS facility to support its business activity in the UK. The same is true for a business which has UK ownership but is registered abroad.

If a business in the UK has an overseas parent can the UK business apply for CLBILS, would the parent need to provide a parental guarantee?
If the UK business can show that the money is for its own use this would be potentially eligible (subject to the normal eligibility criteria). With regard to the guarantee from the parent it is up to the lenders to take whatever security they would normally expect for a facility of that size and for the particular borrower, but this is not an eligibility criterion for CLBILS.

Can a borrower refinance their existing EFG Facility to a CLBILS Facility?
EFG facilities were only available to businesses with a turnover of up to £41m, so a business with an EFG facility would not normally be eligible for CLBILS unless its most recent turnover has increased to over £45m, in which case it would be eligible to apply for a CLBILS facility. Any request for re-financing an existing EFG facility will be at each individual Lender’s discretion, be subject to certain limits, and the borrower meeting the CLBILS eligibility criteria.

State aid and business/undertaking in difficulty

Is there a requirement to be State aid compliant and how will this be managed?
The CLBILS scheme must meet State aid requirements. When assessing an applicant’s eligibility for a facility, it is the lender’s responsibility under their agreement with the British Business Bank to check compliance, particularly in relation to assessing whether a business is an “Undertaking in Difficulty” (which is a key State aid requirement). Information is available from the British Business Bank to lenders on various aspects of State aid.

What State aid clearance does CLBILS have?
It falls under the Covid-19 Temporary Framework for UK authorities.

How do I know if a company has received rescue aid or restructuring aid?
Companies will know if they have received rescue or restructuring aid as they will have been informed of this at the time of grant and this type of aid is normally the subject of a specific State aid approval from the European Commission.

For the avoidance of doubt, aid provided under the Enterprise Finance Guarantee Scheme is not rescue or restructuring aid. Note also that the test here is whether the company is currently in receipt of rescue aid or currently operating under a restructuring plan. Where aid measures are entirely historic this is not a barrier to participation in CLBILS. There will be only a very small number of companies within this category. In case of any doubt seek specific advice.

What is the guidance on businesses/undertakings in difficulty, can the government be more flexible on this in the current circumstances?
Guidelines on undertakings in difficulty are a key requirement under EU law around State aid. Some guidance on determining this for individual businesses is set out in the questions below. As this is a requirement under EU law on State aid the scheme is constrained by these rules meaning lenders and the BBB do not have flexibility.

Can a borrower self-certify that it is not a business/undertaking in difficulty?
No, given the size of companies and types of facilities granted, lenders should be comfortable the borrower is not a business in difficulty.

Which businesses meet the “business in difficulty”/ “undertaking in difficulty” criteria?
A business or “undertaking” in difficulty includes businesses that:

    • had accumulated losses greater than half of their subscribed share capital (for limited liability companies) or capital (for unlimited liability companies);
    • had entered into collective insolvency proceedings or fulfilled the criteria to be put into collective insolvency proceedings;
    • had previously received rescue aid that was yet to be reimbursed or (in the case of a guarantee, terminated);
    • had received restructuring aid and were still under a restructuring plan; or
    • had (where that business is not an SME) fallen below solvency ratios (see further below) for the previous two years.

A business or undertaking only needs to fulfil one of these criteria to be in difficulty.

New guidance issued on 25 September 2020 allows for the ‘undertaking in difficulty’ assessment to be determined at the date of application for a scheme facility. This means that a business that was an ‘undertaking in difficulty’ on 31 December 2019 but, at the date of application for a scheme facility, is no longer an ‘undertaking in difficulty’ will now be (in principle) eligible for the scheme.

What type of businesses will be captured by the business in difficulty definitions – high growth and thinly capitalised companies?
The definition of ‘undertaking in difficulty’ includes businesses which have accumulated losses greater than half of their share capital, which may include some high-growth companies.

What does it mean for a business to have accumulated losses greater than half of their capital?
Limited liability companies (i.e. any public companies limited by shares or by guarantee, and any private companies limited by shares or by guarantee) will be regarded as having accumulated losses greater than half their capital if deducting accumulated losses from a company’s reserves (and all other elements generally considered as part of the company’s own funds) leads to a negative amount that exceeds half of the company’s subscribed share capital (including any share premium).

For companies where at least some of the members have unlimited liability for the debt of the company (i.e. partnerships, limited partnerships and unlimited companies), the test is whether more than half of the company’s capital as shown in the company’s accounts has disappeared as a result of the accumulated losses.

What is “share capital”?
This includes a company’s called up share capital’ and ‘paid up share capital’ and also include the share premium account.

Retained profits can be added to share capital. These should be deducted from any accumulated losses before the reserves are deducted from the accumulated losses.

Shareholder loans may be included if these have been converted into equity. It may also be possible to include loan notes (and other equity like instruments). The inclusion of these should follow their accounting treatment.

What are “reserves”?
This includes all elements generally considered as part of the own funds of the company. In its most simple form, anything in the ‘reserves’ section of the Applicant’s balance sheet (e.g. any reserves they are legally required to hold, any reserves required to be held by the applicant’s articles of association, and any other reserves including fair value reserves or revaluation reserve) should be deducted from the ‘accumulated losses’ (these should be genuine losses once all retained profits have been deducted).

What is “capital” for companies with unlimited liability?
Capital should include anything which would ordinarily be treated as capital in the applicant’s accounts according to normal accounting treatment.

What are “collective insolvency proceedings”?
For the purpose of interpreting “collective insolvency proceedings” you should use the definition in Commission Regulation (EU) 2015/848 of 20 May 2015 (the “Insolvency Regulation”) instead of using the definition of ‘insolvency proceedings’ in the Insolvency Act 1986.

What does the definition of “collective insolvency proceedings” mean from a practical perspective?
From a practical perspective, the following UK proceedings are categorised as ‘collective insolvency proceedings’ under the Insolvency Regulation:

  • Winding-up by or subject to the supervision of the court;
  • Creditors’ voluntary winding-up (with confirmation by the court);
  • Administration, including appointments made by filing prescribed documents with the court;
  • Voluntary arrangements under insolvency legislation;
  • Bankruptcy or sequestration.

The ‘voluntary arrangements’ listed above include company voluntary arrangements and individual voluntary arrangements.

Receiverships, members’ voluntary liquidations and schemes of arrangement under Part 26 of the Companies Act 2006 are not included in the scope of the Insolvency Regulation and therefore fall outside of the definition of “collective insolvency proceedings”.

What is the interpretation of “fulfils the criteria under its domestic law for being placed in collective insolvency proceedings”?
There is no official guidance from the European Commission on what this means.

In practice we suggest the following approach should be taken:

  • If a borrower is the subject of any of the proceedings listed in J.7 above, then the borrower should be categorised as a business in difficulty.
  • If a borrower is not subject to any insolvency proceedings but meets the criteria for any of the above listed insolvency proceedings i.e. a court would make an order if a petition was made, then the borrower should be categorised as a “business/undertaking in difficulty”. Companies subject only to vexatious claims (where a court would not grant an order) would not ‘fulfil the criteria’, and therefore would not be categorised as a business in difficulty.

What solvency ratios must a company, that is not an SME (because it has 250 or more employees), meet to not be “in difficulty”?
A business that is not an SME will be in difficulty if, for the previous two years, the business’s book debt to equity ratio was greater than 7,5; and its EBITDA interest coverage ratio was below 1.0. A business must meet both of these ratios for both years to be classed as “in difficulty”.

The term debt should be understood as the book value of short-term and long-term interest-bearing financial liabilities of the applicant. The term equity should be understood to mean capital contributions invested directly or indirectly in return for the ownership of a corresponding share of an undertaking (it should correspond to the subscribed share capital above).

Should the tests for a “business/undertaking in difficulty” be on an individual or group basis?
An undertaking is a single economic unit, which may be an individual entity or a group of entities. Depending on your business, lenders may consider it appropriate to apply the test on an individual or a group basis.

What is the EU law concept of an undertaking?
An undertaking is defined as a single economic unit having a common source of control. This may be a single entity or a group of legal entities if they are all pursuing the same aim on a long-term basis.

A parent company may form a single undertaking with its subsidiary companies. This would be the case where subsidiary companies have no freedom to determine their own course of action on the market and therefore carry out, in all material respects, the instructions and economic aims given to them by the parent company i.e. the parent company exercises decisive influence over its subsidiary companies’ actions.

Where a subsidiary company is 100% or close to 100% owned by a parent company there is a presumption that the subsidiary company will be part of the same undertaking as the parent. This is because it is presumed that the parent company will exercise decisive influence over the subsidiary’s actions. This applies through a chain of entities e.g. if Company A owns 100% of the shares in Company B and Company B owns 100% of the shares in Company C, the presumption is that Companies A, B and C will form a single undertaking.

Where a parent company holds a majority interest in a subsidiary company no presumption exists that they form part of the same undertaking, however, this is may be the case if the parent company exercises its voting rights and/or appoints members to the board of directors, which allows the parent company to exercise decisive influence over the actions of the subsidiary.

Examples of decisive influence would include, for example, whether the subsidiary relies on financing provided by the parent for working capital or where there is overlap in the identities of the board members of the two companies or where the parent actually exercises control by involving itself directly or indirectly in the subsidiary’s management.
In general where a parent company holds only a minority interest in a subsidiary company the subsidiary will not form part of the same undertaking as the parent company unless that the parent company is able to exercise decisive control over the actions of the subsidiary (e.g. through veto rights or rights to appoint board members).

It is within a lender’s discretion (acting in a reasonable manner) to make the determination of what is the “Undertaking” of which the borrower is a part (i.e., a “Borrower Group” for these purposes) taking into account the principles above, for example, a lender may come to a conclusion that only a part of a formal group structure is relevant for this test if it is comfortable that there are or will be reasonable safeguards in place to negate or limit any ‘decisive influence’ by other parts of the formal group on the borrower group.

In practical terms for a lot of companies where they are a majority owned subsidiary, the test will be run on the ultimate parent’s consolidated group accounts.

Delivery

How quickly can applicants expect to receive the funds?
This will vary from lender to lender and whether additional security is taken. Lending to mid-cap and larger businesses is typically more bespoke and can take longer to negotiate by lenders. However, lenders are fully aware of the current urgency, so we would expect them to respond appropriately to their customers’ needs. Lenders who are already accredited to the Government’s CBILS scheme may be exempt from some or all of the accreditation processes to expedite delivery if they can demonstrate the ability to deliver the scheme.

Will you require extra resource to deliver such a large and complex package?
We expect to be able to deliver the scheme within our expert resources at the Bank. The number of businesses that are of a size sufficient to qualify for this scheme is relatively small, and we expect to be able to accredit lenders who are already accredited to CBILS rapidly.

How many applications are expected from launch and how long is it going to take to work through them all?
It is impossible to predict what the demand for the scheme will be, but the scheme is being delivered through existing systems that are familiar to the lenders. Furthermore, the number of mid cap and large businesses is considerably smaller than the number of SMEs covered under the CBILS.

Due to the scheme being available through a delivery partner network of accredited lenders, it is not reliant on a single delivery agent.

Lenders who are already accredited to the Government’s CBILS scheme will be exempted from some or all of the accreditation processes if they apply for accreditation, in order to expedite delivery.

Following launch, we intend to prioritise the accreditation of new lenders to expand our network even further, which should help meet high levels of demand. We are doing everything we can to support the smooth launch and rollout of the scheme which includes putting additional resources in place within BBB to help onboard new lenders seeking accreditation as quickly as possible.

Have banks/lenders agreed to use the scheme?
The scheme will be delivered by lenders, many of whom are already accredited for CBILS and will be exempted from some or all of the accreditation processes if they apply for accreditation to this scheme.

Our existing accredited lenders are familiar with the scheme systems and processes, which the new scheme is based upon.

Lenders wishing to offer CLBILS facilities for an amount greater than £50m will need additional accreditation. The lender will generally be expected to have permission to use the Internal Ratings Based (IRB) approach, approved for corporate lending at this scale.

Lenders wishing to offer CLBILS facilities for an amount, in aggregate, greater than £50m to any borrower or borrower group, will need to notify the British Business Bank in advance of agreeing any facility.

[1] A private equity/venture capital investment fund is a vehicle for enabling pooled investment by a number of investors in the equity and equity-related securities (such as quasi-equity) of companies (investee companies). These are generally private companies whose shares are not quoted on any stock exchange. The fund can take the form either of a company or of an unincorporated arrangement such as a limited partnership. In form, a private equity/venture capital company can either be a company or a limited partnership: a few are quoted on stock markets
[2]Business angels are private individuals who either solely invest their own cash in SMEs or alternatively invest in syndicates where typically one angel in the syndicate takes a lead role. Angels normally have no previous family connection with the business and make their own investment decision rather than making a decision through an independent manager. The lead angel of the syndicate or the angel investing alone will typically follow the investment after it is made by observing and providing his/her knowledge, experience and support to the investee company by way of mentoring assistance.
[3] The following are not eligible to apply: credit institutions (falling within the remit of the Bank Recovery and Resolution Directive), building societies, insurers and reinsurers (but not insurance brokers), public-sector bodies, state-funded primary and secondary schools