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Government-backed Business Support
Articles Employment 24th Mar 2020

Coronavirus: FAQs regarding Government-backed Business Support – March 2020

Last Updated: 5:00pm, 12 January 2021

COVID-19 (better known as Coronavirus) has been declared a pandemic by the World Health Organisation. The situation is developing on an almost hourly basis. From being a remote issue we are now increasingly approached by clients with questions about how to keep their businesses afloat during the current crisis, which according to the most recent Government announcement, has yet to reach its peak.

The Government has recently announced a raft of business support measures to help businesses survive an environment where their trading has been curtailed and their cost of operations may outstrip their income. These include Business Interruption Loans, a Coronavirus Job Retention Scheme and tax deferrals and holidays. Here at Freeths we are monitoring the latest developments on an hourly basis to bring you the most up-to date current position, in a fast moving, evolving situation.

We have sought to set out below some of the most common questions in relation to the current position. The Q&A is intended as general guidance only; a response to specific queries and comprehensive legal advice on any of the issues discussed in this note is available as required on request.

Business Interruption Loan Schemes

What is the aim of the Coronavirus Business Interruption Loan Scheme (“CBILS”)?

The CBILS’ aim is to support UK businesses by the continued provision of finance during the COVID-19 outbreak.

How will the CBILS work?

The CBILS will operate in a similar manner to the Enterprise Finance Guarantee scheme whereby lenders providing funding to eligible businesses will benefit from a government-backed guarantee of up to 80% of the outstanding facility balance, subject to an overall cap per lender.

Freeths’ has acted on a number of transactions that utilise the Enterprise Finance Guarantee Scheme so is familiar with the documentation and process for transactions of this type.

When will the CBILS become available?

The British Business Bank (a state-owned economic development bank established by the UK Government) introduced the CBILS on 23 March 2020.

On 17 December 2020, the Government announced that the scheme will be extended until 31 March 2021.

How will CBILS make finance available for businesses?

The CBILS will make finance available through the following products:

  • overdrafts;
  • invoice discount facilities;
  • asset finance facilities; and
  • term loans.

Who is eligible for the CBILS?

To be eligible for the CBILS, a business must be:

  • applying for business purposes;
  • UK based with a turnover of no greater than £45 million per year;
  • generating more than 50% of its turnover from trading activity – this means that real estate investment / development businesses are unlikely to be able to utilise the scheme;
  • operate in an eligible industrial sector (banks and certain public sector bodies are not eligible for this scheme); and
  • unable to meet a lender’s normal lending criteria for a commercial loan or other facility but otherwise be considered a viable business in the long term.

What are the finance terms of the CBILS?

Finance terms are up to 6 years for term loans and asset finance facilities, and up to 3 years for revolving and invoice finance facilities.

The UK Government will make a Business Interruption Payment to cover the first 12 months of interest payments and any lender fees (some lenders have indicated that they will not charge arrangement fees or early repayment charges to entities borrowing under the CBILS) under the financing arrangements entered into.

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What is the maximum amount of a facility?

The maximum amount of a facility made available under the CBILS will be £5 million.

Who is liable for the debt?

The borrower remains fully liable for repaying the debt like any other commercial lending facility (ie it is not a grant).

Is security required for the CBILS?

Following the government’s recent announcement, from 6 April 2020 insufficient security is no longer a condition to access the CBILS. This means that the scheme is now available for all CBILS-backed facilities, including those over £250,000, and lending support can be provided even where businesses are considered to have sufficient security and would, otherwise, be able to obtain lending on a normal commercial basis.

It was also announced that from 6 April 2020 facilities under £250,000 do not require personal guarantees. For facilities over £250,000, personal guarantees may still be required at a discretion of a lender. However, any personal guarantee provided is capped at a maximum of 20% of the outstanding balance of the CBILS facility after the proceeds of business assets have been applied.

These changes aim to ensure that a larger number of small businesses are now able to access the scheme.

How is this scheme being funded?

Large, systemically important UK entities (such as the major UK clearing banks) are able to access the Bank of England’s COVID Corporate Financing Facility.

This facility will enable such entities to issue commercial paper (which are a form of IOUs) to the Bank of England in exchange for funding.

The aim of this scheme is to provide liquidity to the banking system and larger firms with the hope that they will then provide funding to small and median sized entities.

How should a business apply for the CBILS?

If a business would like to take advantage of the CBILS, it should contact an accredited lender. It is important to appreciate that it is commercial lenders and not the government that will provide funding under the CBILS.

Such lenders include the leading UK Clearing Banks such as Lloyds, NatWest, Barclays and Clydesdale Bank.

A full list of the current accredited lenders can be found by clicking here.

Can larger businesses access the CBILS?

On 20 April 2020, the government introduced a new scheme, the Coronavirus Large Business Interruption Loan Scheme (CLBILS). The CLBILS aims to ensure that larger businesses can also benefit from the government’s financial support measures.

Under the CLBILS accredited lenders are now able to provide loans of up to £25 million to businesses with an annual turnover between £45 million and £250 million, and loans up to £50 million to businesses with an annual turnover of over £250 million. Such debt will be provided for terms of between 3 months and 3 years.

Eligibility criteria for the CLBILS is largely the same as for the CBILS (UK based business and demonstration that it has been adversely impacted by COVID-19) other than a business must:

  • have an annual turnover of more than £45 million; and
  • not have received any financial assistance under the COVID Corporate Financing Facility (please see below for more details).

Another difference between the schemes is that the government will not make a Business Interruption Payment to cover the interest and lender levied fees for the first 12 months of any loan under CLBILS. However, the 80% government-backed guarantee will cover interest and the fees as well as the principal amount of the facility.

Otherwise, the new scheme is broadly similar to the CBILS.

On 17 December 2020, the Government announced that the scheme will be extended until 31 March 2021.

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How does the Business Bounce Back Loan Scheme work?

The BBLS launched on 4 May 2020 for an initial period of 6 months.

As with CBILS and CLBILS, the Business Bounce Back Loan Scheme (“BBLS”) can be accessed through accredited lenders. The scheme helps small and medium-sized businesses by making available loans of between £2,000 and up to 25% of their turnover. Unlike CBILS and CLBILS, the government will guarantee 100% of the loan.

No payments of fees, interest or principal will be payable for the first 12 months of any loan advanced under the BBLS. After the initial 12 months, the interest rate will be 2.5% per annum. Loan terms will be for up to 6 years, but can be repaid early without paying a fee. BBLS also provides an option of extending the term of the loan up to 10 years, moving to interest-only repayments for a period of 6 months or pausing the loan payments for a period of 6 months, if a business has already made at least 6 repayments.

The BBLS will be available to UK businesses that can demonstrate: (i) they have been adversely impacted by COVID-19 and (ii) were not ‘an undertaking in difficulty’ as of 31 December 2019.

Entities that have already received, or are applying for, funding under CBILS may not access the BBLS. However, if an entity has received a loan under CBILS it may apply for BBLS facility if the BBLS facility will refinance the CBILS loan in full.

On 17 December 2020, the Government announced that the scheme will be extended until 31 March 2021.

More information about the scheme and details of the application process can be found here.

What financial assistance is available for larger firms with a turnover of over £500 million?

The COVID Corporate Financing Facility has been designed to support liquidity among larger firms through the purchase of short term debt in the form of commercial paper. This scheme is available to companies that make a material contribution to the UK economy. To be eligible, companies must have been in sound financial health prior to the economic shock caused by COVID-19

The test for establishing whether a company is of sound financial health is whether it has a short or long term credit rating of investment grade, as at 1 March 2020. This credit rating will be one published by a major credit ratings agency (such as S&P, Moody’s or Fitch).

If a company does not have a credit rating then it may still be possible to access the scheme if is viewed by a bank as having an investment grade credit rating.

Companies must issue commercial paper through a bank so contacting your bank should be the first step taken to access the scheme.

On 9 October 2020 it was announced that any company that wants to issue commercial paper (whether initial or roll-overs of maturing commercial papers) after 9 October 2020 will be subject to an ongoing  review by HM Treasury to determine if commercial paper remains in line with the purpose of the facility.

The CCFF closed to new applications on 31 December 2020. Eligible issuers that have already signed up to the scheme as at 31 December 2020 will continue to be able to issue new commercial paper until the closure of the CCFF.

More information about the scheme can be found here.

Is any government financial support available to start-ups?

On 20 April 2020 the government launched a new scheme, the Future Fund, in order to provide start-ups and scale-ups with the government’s financial support. The Future Fund provides government convertible loans from £125,000 to 5 million to UK-based businesses, subject to a business securing an equivalent funding from third party investors. A business must have also raised a minimum of £250,000 in equity investment from third party investors in the past 5 years.

Is any financial support available for businesses that had to close down due to temporary COVID-19 lockdown restrictions?

The Local Restrictions Support Grants were introduced by the government to support businesses that were providing face-to-face services to customers from their business premises but were then required to close or were severely impacted due to local lockdown or national restrictions imposed by the government.

LRSG (Closed) or LRSG (Closed) Addendum: Tier 4

Businesses that were open as usual and were then required to close due to local Tier 2, Tier 3 and Tier 4 restrictions may be eligible for LRSG (Closed) or LRSG (Closed) Addendum: Tier 4. Eligible businesses may be entitled to a cash grant from their local council for each 14 day period they are closed.

A business may apply if it:

  • is based in the UK;
  • occupies a property on which it pays business rates (one grant for each non-domestic property within the restriction area may be available);
  • has been required to close for at least 14 days because of the restrictions:
    • in an area of local Tier 2 and Tier 3 restrictions – first full day of closure on or after 9 September 2020;
    • in an area of local Tier 4 restrictions – first full day of closure on or after 19 December 2020; and
  • has been unable to provide its usual in-person customer service from its premises.

The grant will be based on the rateable value of the property, such as:

  • if a rateable value is £15,000 or less, a business may be eligible for a cash grant of £667 for each 14 day period of closure;
  • if a rateable value is between £15,000 and £51,000, a business may be eligible for a cash grant of £1,000 for each 14 day period of closure; and
  • if a rateable value is £51,000 or above, a business may be eligible for a cash grant of £1,500 for each 14 day period of closure.

Similar grants are available under the LRSG (Sector) funding, however, the LRSG (Sector) scheme specifically relates to business such as nightclubs, dance halls, discotheques, adult entertainment venues and hostess bars, which have been closed since 23 March 2020 due to national restrictions. LRSG (Sector) funding has been made available from 1 November 2020 and is not retrospective.

LRSG (Open)

The LRSG (Open) scheme helps businesses that have not had to close but were severely affected due to local Tier 2 or Tier 3 restrictions. This scheme is at the discretion of local councils, which decide the precise eligibility criteria.

A business may apply if it:

  • is based in the UK;
  • is in an area subject to local Tier 2 or Tier 3 restrictions since 1 August 2020 and has been severely impacted but has not had to close down because of those restrictions; and
  • was established before the introduction of Tier 2 or Tier 3 restrictions.

As with the LRSG (Closed), LRSG (Closed) Addendum: Tier 4 and LRSG (Sector), the grant will based on the rateable value of the property and is anticipated to be in the region of the following scale:

  • if a rateable value is £15,000 or less, a business may be eligible for a cash grant up to £467 for each 14 day period of closure;
  • if a rateable value is between £15,000 and £51,000, a business may be eligible for a cash grant up to £700 for each 14 day period of closure;
  • if a rateable value is £51,000 or above, a business may be eligible for a cash grant up to £1,050 for each 14 day period of closure.

In the event of national restrictions being introduced, LRSG (Open) will cease to apply as eligible businesses will receive funding either from the LRSG (Closed) Addendum or Additional Restrictions Grant.

LRSG (Closed) Addendum

The scheme applies to businesses that were open as usual, but were then required to close between 5 November and 2 December 2020 due to the national restrictions. Eligible businesses may be entitled to a cash grant for each 28 day period under such restrictions.

When national restrictions are introduced and businesses are required to close, LRSG (Closed) is superseded by LRSG (Closed) Addendum.

A business may be eligible for LRSG (Closed) Addendum if it:

  • is based in the UK;
  • occupies a property on which it pays business rates (one grant for each non-domestic property within the restriction area may be available);
  • has been required to close from 5 November to 2 December 2020 because of the national restrictions; and
  • has been unable to provide its usual in-person customer service from its premises.

The grant will be based on the rateable value of the property, such as:

  • if a rateable value is £15,000 or less, a business may be eligible for a cash grant of £1,334 for each 28 day period of closure;
  • if a rateable value is between £15,000 and £51,000, a business may be eligible for a cash grant of £2,000 for each 28 day period of closure; and
  • if a rateable value is £51,000 or above, a business may be eligible for a cash grant of £3,000 for each 28 day period of closure.

On 5 January 2021 it was also announced by the government that retail, hospitality and leisure businesses that have been required to close due to national restrictions as of 5 January 2021 may be eligible for a one-off grant of up to £9,000 per property to support businesses through the latest restrictions. The one-off top up will be based on a rateable value of the property as follows:

  • £4,000 for businesses with a rateable value of £15,000 or under;
  • £6,000 for businesses with a rateable value between £15,000 and £51,000; and
  • £9,000 for businesses with a rateable value of over £51,000.

Additional Restrictions Grant (ARG)

The ARG scheme helps businesses that are not eligible for the other Local Restrictions Support Grants or that require additional funding. In particular, this relates to closed businesses that do not pay business rates and businesses that do not have to close but are significantly impacted by the restrictions.

The scheme is exercised at the discretion of local councils, which determine the eligibility criteria for the ARG and which businesses should be targeted for the grant.

Businesses can apply for the above grants by visiting their local councils’ websites.

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Is any financial support available to charities? 

On 8 April 2020, Chancellor Rishi Sunak announced that the government will provide the UK charities with a £750 million support fund in order to enable the charities to continue carrying out their important work during the COVID-19 pandemic. The announcement builds on previous measures put in place by the government to support charities, such as deferring their VAT payments, reducing business rates and furloughing staff.

The Chancellor confirmed that out of the £750 million fund, £360 million will be allocated directly by government departments to front-line charities providing key services and supporting vulnerable people during the crisis. The fund is expected to help the front-line charities to increase their capacity and the number of staff, and enable them to continue supporting the NHS. It was clarified that these front-line charities will include:

  • hospices;
  • St Johns Ambulance;
  • victims charities;
  • vulnerable children charities; and
  • Citizen Advice.

Further £370 million will be distributed to small and medium-sized charities, including through a grant to the National Lottery Community Fund. This will enable charities providing vital services to local communities, such as those delivering food and medicines, and providing financial support, to also benefit from the government’s cash grants.

Additionally, the government will match the public’s donations to the BBC’s Big Night In charity appeal taking place on 23 April 2020, with a starting contribution of at least £20 million to the National Emergencies Trust appeal.

This announcement has received overwhelmingly positive responses from charities across the UK, stating that this unprecedented government funding recognises the importance of the vital work carried out by the charities in supporting communities and the NHS.

The funds are expected to be operational in the coming weeks.

Coronavirus Job Retention Scheme

For up to date information and Q&A see Coronavirus: Job Retention Scheme

On 21st March 2020 the Chancellor of the Exchequer announced the Coronavirus Job Retention Scheme (the “Scheme”). The Scheme will enable employers to contact HMRC for a grant to cover most of the wages of their workforce who remain on payroll but are temporarily not working during the coronavirus outbreak. For more information see our Coronavirus Job Retention Scheme Q&A.

Tax deferrals and holidays

I’m a business and as a result of COVID-19, I need help with my tax bills. Is any help available to me?

Yes, the Government has launched a number of initiatives —

  • VAT payment deferral
    Businesses will automatically (subject to the following comments for businesses with direct debit mandates in place to pay their VAT) be entitled to defer VAT payments for 3 months from 20 March 2020 until 30 June 2020. Businesses will be given until the end of the 2020/2021 tax year to pay any liabilities that have accumulated during the deferral period. VAT refunds and reclaims will be paid by the Government as normal. Please note that HMRC has now confirmed that it will not automatically cancel collection of VAT payments by direct debit. Businesses that have a direct debit mandate in place to pay their VAT and wish to defer payment will need to contact their bank to cancel that mandate (and this will need to be done before the direct debit is due to be collected).
  • Business Rates holiday for all retail, hospitality, leisure and nursery businesses in England
    Businesses in the retail, hospitality and leisure sectors, and nursery businesses, in England will not have to pay business rates for the 2020/2021 tax year. Properties that will benefit from the relief will be those that are wholly or mainly being used: (1) as shops, restaurants, cafes, drinking establishments, cinemas and live music venues; (2) for assembly and leisure; or (3) as hotels, guest and boarding premises and self-catering accommodation. The Government has also confirmed that the holiday will apply to nurseries. Local Authorities are expected to apply the Business Rates holiday automatically.
  • Grant funding of up to £25,000 for businesses in England the retail, hospitality and leisure sectors
    English businesses in these sectors with a rateable value of under £15,000 will receive a grant of £10,000. Businesses with a rateable value of between £15,001 and £51,000 will receive a grant of £25,000. Properties that will benefit from the relief will be those that are wholly or mainly being used: (1) as shops, restaurants, cafes, drinking establishments, cinemas and live music venues; (2) for assembly and leisure; or (3) as hotels, guest and boarding premises and self-catering accommodation. Local Authorities are expected to write to businesses which are eligible for this grant.
  • Increasing grants to small businesses in England eligible for small business rate relief (SBRR), rural rate relief (RRR) and tapered relief from £3,000 to £10,000
    Local Authorities are expected to write to businesses which are eligible for this grant.
  • HMRC Time To Pay Scheme
    All businesses and self-employed people in financial distress, and with outstanding tax liabilities, may be eligible to receive support with their tax affairs through HMRC’s Time To Pay service. These arrangements are agreed on a case-by-case basis and are tailored to individual circumstances and liabilities. Businesses seeking to avail themselves of the Time to Pay Scheme should contact HMRC.
  • Self-employed income tax deferral
    Income Tax payments due in July 2020 under the Self-Assessment system will automatically be deferred to January 2021. No penalties or interest for late payment will be charged in the deferral period.

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Is any help available with payroll or employment taxes/PAYE?

Yes, the Government has launched the Coronavirus Job Retention Scheme – See Q&A on the Job Retention Scheme above

Unfortunately, as at 23 March 2020, full detail of the Scheme are not yet available and it is not clear how the “furloughing” process will work (for example, what if employers switch employees to reduced working – this would not currently appear to satisfy the conditions of the Scheme), how employees on zero hours contracts will be treated or, indeed, how wages/salary will be computed for these purposes. We anticipate that the Government is still working out some of this detail.

The Government has also said that it will retain the right to retrospectively audit all aspects of the Scheme with scope to claw back fraudulent or erroneous claims. Workers on the Scheme will not be entitled to redundancy pay whilst still on the Scheme.

Further information can also be found here.

Business trading internationally

My business trades internationally – what support am I entitled to?

The Government and Department for International Trade (“DIT”) have a number of ways to support UK businesses, whose supply chains have been adversely effected by the spread of the Coronavirus.

Using its global network of businesses across the world, the DIT can help by putting you in touch with alternative suppliers and by assisting in liaising with the local embassy or consulate, to provide you with local guidance on an international scale.

UK Export Finance (UKEF) works also with banks and insurance brokers to help companies of all sizes fulfil and get paid for export contracts. It provides guarantees, loans and insurance on behalf of the government that can protect UK exporters facing delayed payments or transit restrictions.

Help from UKEF includes the following:

  • if your business is facing disruption due to late payments, UKEF can help ease cash flow constraints by guaranteeing bank loans through its Export Working Capital Scheme
  • if you are concerned about getting paid, UKEF offers an export insurance policy that can help you recover the costs of fulfilling an order that is terminated by events outside your control
  • UKEF can also support finance for overseas buyers through the Direct Lending Facility scheme, so they can continue to buy your goods and services
  • UKEF has over £4 billion of capacity to support UK firms exporting to China, as well as significant capacity across other markets affected by Coronavirus to help cover these risks.
 

If you would like to talk through the consequences for your business, please email us and one of our team will get in touch.


The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.

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