Business interruption loan schemes and Covid-19: a real estate finance perspective

The Coronavirus Business Interruption Loan Scheme (CBILS) and the Coronavirus Large Business Interruption Loan Scheme (CLBILS) have been created to provide eligible businesses with financial support during the current period of economic inactivity caused by the Covid-19 coronavirus pandemic.

While CBILS and CLBILS are not specifically designed to support the sector, real estate businesses may seek access to one of the schemes if they satisfy the relevant eligibility criteria.

There have been various changes to the features and eligibility requirements of CBILS since its introduction. The key features of, and eligibility for, each scheme may be subject to further refinement by the government.

CBILS: features and eligibility

CBILS provides credit support to certain debt products made available to small and medium-sized enterprises (SMEs). That credit support is presently provided in relation to term loans, overdrafts, invoice finance and asset finance facilities of up to £5 million and for up to six years (depending on the type of facility).

The scheme is operated by the British Business Bank via its accredited lenders. There are presently 40-plus accredited lenders able to offer finance under the scheme, including many of the UK's largest banks. CBILS provides lenders with a government-backed guarantee of 80% of the outstanding balance of the loans made available under the scheme.

The government will make a Business Interruption Payment under the scheme to cover the first 12 months of interest payments and any lender-levied fees. A participating SME therefore benefits from no upfront costs and no initial interest payments (subject to certain exclusions).

Who's eligible?

In order to be eligible to participate in the scheme, a business must:

• Be UK-based in its business activity.
• Have an annual turnover of no more than £45 million.
• Have a borrowing proposal which the lender would consider viable, were it not for the current pandemic.
• Self-certify that it has been adversely impacted by the coronavirus.
• Not have been classed as a “business in difficulty” on 31 December 2019, if applying to borrow £30,000 or more.

Exceptions to and exclusions from the scheme are set out in detail on the British Business Bank website.

CLBILS: features and eligibility

As the name suggests, CLBILS provides credit support to businesses that are larger than SMEs. Under the scheme, lenders can provide up to £25 million to businesses with turnover from £45 million up to £250 million and up to £50 million to businesses with turnover of over £250 million. The maximum repayment term is three years.

Like CBILS, the scheme provides lenders with a government-backed guarantee of 80% of the outstanding balance of the loans made available under the scheme.

There are no Business Interruption Payments made by the government under CLBILS.

Who's eligible?

To be eligible to participate in the scheme a business must:

• Be UK-based in its business activity.
• Have an annual turnover of more than £45 million.
• Have a borrowing proposal which the lender would consider viable, were it not for the current pandemic, and for which the lender believes the provision of finance will enable the business to trade out of any short-term to medium-term difficulty.
• Self-certify that it has been adversely impacted by the coronavirus.
• Not have received a facility under the Bank of England’s Covid-19 Corporate Financing Facility.

Exclusions from and exceptions to CLBILS are also set out in detail on the British Business Bank website.

Real estate finance

Both CBILS and CLBILS can offer support to real estate businesses as they do other parts of the UK economy amid the Covid-19 emergency. The schemes may be of particular help to businesses in the retail, hotel, bar and hospitality sectors and other sectors where real estate forms part of the service.

Each of the schemes may be accessed via one of the accredited lenders for that scheme. A list of accredited lenders is available on the British Business Bank website. The lender of record under each scheme will be the relevant accredited lender (not the government). Accredited lenders will need to pay a fee to the government to make use of the schemes.

Notwithstanding the guarantee from the government, lenders offering a scheme facility will need to go through a formal credit and underwriting process (as they would do before deciding to advance any loan in the ordinary course of business) to determine if there is an appetite to lend.

This will likely make the provision of a scheme facility, in an already highly leveraged deal, challenging. For real estate companies that are not highly leveraged (such as real estate investment trusts), a scheme loan may be more readily available.

Guarantee terms

The terms of the government's guarantee require that any loan made under CLBILS should rank pari passu with a borrower's existing indebtedness. Additionally, lenders are expected to follow their usual credit and security assessment policies. For facilities over £250,000, if a borrower has available security, then the lender is expected to take security. For facilities up to £250,000, CLBILS may be used for unsecured lending at the lender's discretion. Given these points, we expect to see lenders utilising existing security packages to act as collateral for CLBILS loans. For both schemes, lenders will not take personal guarantees for facilities below £250,000.

The pricing for scheme loans will vary from accredited lender to accredited lender – with some lenders pricing off LIBOR and others off the Bank of England base rate. Irrespective of who the lender is, it is expected that pricing will reflect the economic benefit of the credit enhancement inherent in the government guarantee.

In terms of how CLBILS loans are documented, this will depend on whether the relevant real estate business has existing financing in place or not. Inserting such loans into an existing syndicated lending deal is possible, but there are complexities (especially where the other lenders are not accredited) and there are various commercial points that will need to be worked through.

Demand for scheme loans is expected to be high across business community but their appeal to real estate businesses remains to be seen.

Next steps

Useful sources of further information on coronavirus business interruption loans include government guidance for the SME and large businesses, and the British Business Bank resources.