Reed Smith Client Alerts

As outlined in our previous alert, the UK government has introduced a number of government-backed schemes and facilities to assist firms in maintaining liquidity during the COVID-19 pandemic. A summary of those schemes can be found in our PDF, Finance facilities available to UK borrowers in response to the COVID-19 crisis. On 27 April 2020, Her Majesty’s Treasury announced a further scheme intended for small and medium-sized enterprises (SMEs): the Bounce Back Loan Scheme (BBLS). The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have also released statements relating to accredited lenders’ regulatory obligations and the treatment under unfunded credit risk mitigation when advancing loans under the Coronavirus Business Interruption Loan Scheme (CBILS) and the Coronavirus Large Business Interruption Loan Scheme (CLBILS).

Authors: Claude Brown Karen Butler David Calligan Kevin-Paul Deveau Tim Dolan Mandip Englund Simon Hugo Leon Stephenson Hannah Sheikh Bhav Panchal

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Summary of the BBLS

The BBLS will offer a loan for 25 per cent of an eligible business’s turnover to a maximum of £50,000. The UK government will guarantee 100 per cent of sums borrowed under the scheme. Businesses will not be able to apply if they have already received a loan under the CBILS – which offers loans of up to £5 million for eligible businesses with a turnover of less than £45 million, under which the government guarantees 80 per cent of the loan. However, until 4 November 2020, those businesses may arrange with their accredited lender to transfer eligible loans received under the CBILS to the BBLS.

The announcement of the BBLS follows mounting pressure on the Chancellor from various industry bodies and business leaders, including the Confederation of Business Industry (CBI), to enable SMEs to have their access to funding speeded up. Data published by UK Finance indicated that fewer than half of the 36,186 applications received by lenders for all of the UK government’s finance facilities had been approved by 23 April 2020. Those advocating a 100 per cent state guarantee argued that the 20 per cent of risk remaining with accredited lenders under the CBILS resulted in bureaucratic delays whilst the lenders went through their internal credit approval processes. In contrast, concerns about the ‘moral hazard’ of enabling lenders to advance moneys without risk to themselves and reports of fraud in other countries’ schemes which offered a 100 per cent state guarantee, militated for requiring accredited lenders to keep some ‘skin in the game’.