Covid-19 Corporate Financing Facility and the Coronavirus Business Interruption Loan Scheme

The Chancellor has announced a series of financial aids for UK businesses and also provided further details of the Covid Corporate Financing Facility. Please note that the Government’s advice and guidance to individuals and businesses is changing rapidly as the UK battles the COVID-19 pandemic. Therefore, please check on the Government website or email the Corporate Group if you have any questions. 

The Facility is operated by the Bank of England (the “Bank”) on behalf of HM Treasury and is designed to support liquidity among larger businesses by enabling the purchase of short-term debt in the form of commercial paper to manage cash flow disruption due to COVID-19. All non-financial companies that meet the eligibility criteria can make use of the Facility. The Bank’s intention is for the Facility to operate for an initial period of 12 months, to help bridge cash flow disruption. The Bank will provide 6 months’ notice of the withdrawal of the Facility.

A commercial paper is an unsecured form of promissory note that pays a fixed rate of interest, which is typically issued by large companies to meet short-term financial obligations. Commercial paper is often cheaper than a bank line of credit, making it an ideal option for companies experiencing a sudden, but temporary, disruption to their cash flow, such as that currently faced by many companies as a result of the COVID-19 economic shock. Commercial paper is quick to put into place (potentially the next business day after an application is submitted to the Bank). However, since a commercial paper is unsecured, it is usually reserved for companies with excellent credit ratings.

Eligible companies must: (a) make a material contribution to the UK economy; and (b) be able to demonstrate that they were in sound financial health prior to the start of the COVID-19 pandemic. Commercial papers issued by banks, building societies, insurance companies and other financial sector entities regulated by the Bank or the Financial Conduct Authority will not be eligible. Commercial papers 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.

Companies that make a material contribution to the UK economy will include either: a UK incorporated company, including those with foreign-incorporated parents and with a genuine business in the UK; or a Company with significant employment in the UK. The Bank will also consider whether the company generates significant revenues in the UK, serves a large number of customers in the UK or has a number of operating sites in the UK. 

The Facility is open to firms that can demonstrate they were in sound financial health prior to 1 March 2020. The clearest way to demonstrate this test is to have, or acquire, a credit rating. For short-term ratings, this would equate to a rating above A3/P3/F3 and for long-term ratings, it would be a rating above BBB-/Baa3/BBB- from at least one of S&P, Moody's or Fitch. If a company does not already have a credit rating, then one solution is for the company or its bank to contact one of the major credit rating agencies to seek an assessment of credit quality in a form that can be shared with the Bank and HM Treasury, noting that the assessment relates to participation in the Facility. 

The minimum size of an individual security that the Fund will purchase from any single participant is £1 million and offers must be rounded to the closest £0.1 million. The commercial paper must mature within 12 months and the Bank will not accept commercial paper with non-standard features, such as extendibility or subordination.

To apply for the Facility you will need to contact your bank directly. It is important to note that not all banks issue commercial paper. If your bank does not issue commercial paper, UK Finance has provided a list of banks that are able to assist. If after speaking with your bank you are still unsure whether you are eligible, you can contact the Bank on [email protected]. The Bank has further guidance and, if eligible, a list of the documents that you will need to complete here. 

Support for SME businesses through the Coronavirus Business Interruption Loan Scheme (“CBILS”)

CBILS is available for businesses that are UK based in its business activity with a turnover of no more than £45 million. Businesses can apply for CBILS if they have a business loan proposal that would have been considered viable by the lender, but for the current circumstances caused by the COVID-19 pandemic. 

Businesses could benefit from: 

• Up to £5m facility: The maximum value of a facility provided under the scheme will be £5 million, available on repayment terms of up to six years.
• 80% guarantee: CBILS provides the lender with a government-backed, partial guarantee (80%) against the outstanding facility balance, subject to an overall cap per lender.
• No guarantee fee for SMEs to access the scheme: There is no fee for smaller businesses. Lenders will pay a fee to access CBILS.
• Interest and fees paid by Government for 12 months: The Government will make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied fees (if applicable), so smaller businesses will benefit from no upfront costs and lower initial repayments.
• Finance terms: Finance terms are up to six years for term loans and asset finance facilities. For overdrafts and invoice finance facilities, terms will be up to three years.
• Security: CBILS may be used for unsecured lending for facilities of £250,000 and under. If the lender can offer finance on normal commercial terms without the need to make use of CBILS, they may do so.

All major banks are now offering the CBILS (at their discretion) and you are able to apply to this scheme through your lender’s website.