A guaranteed business interruption loan scheme has been included as part of the package of support for businesses affected by coronavirus which was announced by the UK Government on Friday 20 March.
Business interruption loans are available from Monday 23 March 2020 and therefore represent one of the earliest available lifelines for businesses which are struggling with the impact of the pandemic.
This note summarises the structure of the scheme and how to access the loans. More information is available at the British Business Bank.
Information in relation to the full package of support announced is available here.
Loans not grants
One point to emphasise is that the funds will be made available as loans and not grants, which means that the amounts advanced under the scheme are repayable.
Some of the support announced by the Government is to be in the form of grants which are not repayable, in particular the proposed Job Retention Scheme (see below).
Is a Business Interruption Loan the most appropriate scheme?
The Government has announced other schemes, in addition to the Business Interruption Loans. Most notably a Job Retention Scheme has been announced under which HMRC will reimburse up to 80% of payroll costs for furloughed workers. (This was announced by the Chancellor as a grant rather than a loan).
As such if your business qualifies for the Job Retention Scheme and most of the costs you are concerned about are payroll costs then the Job Retention Scheme may be more appropriate. A business can apply (and may need to apply) for both a Business Interruption Loan and under the Job Retention Scheme. The Government has confirmed that businesses can apply under more than one scheme.
There are also various tax deferrals and reliefs announced including rates relief for affected businesses and VAT deferral which may also offer some support.
What kinds of businesses are eligible for a Business Interruption Loan?
Unlike some of the other schemes and reliefs announced the Business Interruption Loans are not limited to businesses from directly affected sectors (e.g. hospitality, restaurants, travel). Any 'smaller business' from any sector can qualify for a guaranteed Business Interruption Loan provided that:
- they have turnover of less than £45 million
- they have a borrowing proposal which would be viable but for the pandemic which the lender believes will allow the business to trade out of any small-to-medium term difficulty
The second criterion does leave open some discretion to lenders to determine whether a proposal for a Business Interruption Loan is 'viable' but we would hope that lenders are asked to apply this discretion reasonably with a view to ensuring liquidity in the economy.
Who are the lenders?
There are 40 accredited lenders and the applications of additional lenders are being accelerated so they can facilitate loans under the scheme. Details of the lenders are available here.
The lenders include major clearing banks (HSBC, NatWest, Barclays) and also a number of smaller or sector-specific lenders.
What kind of loans are available?
The scheme does not apply to a specific product, and a Business Interruption Loan can be a standard term loan, an overdraft or an invoice financing facility.
The idea is to make existing products more easily available to businesses by offering a guarantee from the Government.
Is there any help with repayments?
The scheme is not a grant and as such the loans are repayable, and you may be concerned about having the cashflow to fund the repayments. There is some further assistance with repayments. The Government will cover the first 12 months of interest payments and lender fees. This means that the initial repayments for a term loan should be lower (as they will include only the principal amount and not the interest) and there should be no up-front fees.
Are there any limitations on the scheme?
Loans covered by the scheme are up to £5 million.
The maximum repayment period for loans is six years and for overdraft and invoice finance facilities is three years.
Will loans be secured?
Loans of up to £250,000 can be made under the scheme on an unsecured basis (but interest rates may be higher). For loans of above £250,000 the lender is required to undertake some due diligence to verify that security is not available before they lend under the scheme.
Accordingly if the priority is to relieve cash-flow in the short term then funds may be advanced more quickly for a loan of less than £250,000.