Today sees the formal launch of the Coronavirus Large Business Interruption Loan Scheme, or CLBILS for short.  This is the third scheme in the trinity of the Government’s direct funding schemes to UK business impacted by the pandemic.  Targeted at businesses with an annual turnover in excess of £45m, its arrival is intended to plug the hole between the Coronavirus Business Interruption Loan Scheme (CBILS), the SME-targeted scheme, and the Covid Corporate Financing Facility (CCFF), directed at investment grade beneficiaries.  The wall of support for businesses of all sizes is therefore complete.  Or is it?

CBILS has been beset with problems since its inception.  Put simply, the cash isn’t flowing as the Government had intended.  There are several reasons for this.  The criteria were complex, and have been now been simplified, notably to allow businesses which can access credit on commercial terms nonetheless to benefit from this scheme.  To some extent though that’s an easy sell to accredited lenders – moving secured lending from commercial terms to CBILS may be less profitable but then the risk profile is improved immeasurably with the 80% guarantee from the Government.

But, as much as that 80% coverage may help in some instances, it is also a problem.  A problem in that it is not 100%.  Lending to an SME which the accredited lender would “consider viable were it not for the current pandemic” effectively means that the relevant lender is being asked to take a bet equal to 20% of the funding it provides.  The national need is clear but it does amount to asking an accredited lender to unlearn in a matter of days everything about prudent lending and, the avoidance of what some would call “casino banking”, that regulation and political pressure have demanded of lenders since 2008.   So, whilst other changes may have helped, it seems that the 20% is the real blocker.  As the economy deteriorates and the political heat intensifies, sooner or later the Government may well need to recognise this and follow the Swiss and Italian Government in backing funding to SMEs 100%.

On the other hand, it seems as though the eligibility challenge for private equity portfolio companies to benefit from CBILS will be resolved.  The Government is due to confirm that such companies’ turnover will not be aggregated will all other affiliated portfolio companies for the purpose of determining compliance with the £45m eligibility cap. At least one accredited lender has already confirmed that it is now taking this approach.

And then we get to CLBILS, let’s see what the week brings on this front.  There may be similar issues, and the capital stack at this level into which the funding will be inserted is likely to be more complex. This may also bring other potential funding options from existing creditors and arrangements with them, diluting the case for CLBILS support.  CLBILS is the product of intensive discussions between the Government and experienced market professionals.  The scheme may be a cousin of CBILS and, like CBILS, it has been created at speed to answer an acute need and in a uniquely-stressed environment.  But it is different.   Let’s hope there will be limited need for running repairs to this new model.

In the meantime, we have updated our guide which gives an overview of the packages, the level of funding available, eligibility, how to apply and when it is  available.