COVID-19: Loan funding

COVID-19: different types of loan funding. All loan funding is repayable. 

The following loan funds have been announced during the ongoing Coronavirus pandemic.

• The 2021 Budget introduced the Recovery Loan Scheme, available from 6 April 2021.
• Loan funds open until 31 March 2021 - announced 17/12/20
  • Microbusiness 'Bounce back' loans.
  • Coronavirus Business Interruption Loan Scheme.
  • Coronavirus Large Business Interruption Loan Scheme.

• Other loans include:

  • COVID-19 Corporate Financing Facility: closed on 23 March 2021.
  • Future Fund convertible loan scheme: open until 31 January 2021.

Recovery Loan Scheme

From 6 April 2021 companies can apply for loans to support their businesses under the Recovery Loan Scheme. In preparation for non-essential retail and outdoor hospitality reopening next week can access loans. In particular, HM Treasury identified coffee shops, restaurants, hairdressers and gyms.

• Available to those who meet the criteria, even if the business has previously received existing Covid-19 loan support.
• Available from 6 April to 31 December 2021.
• Term loans and overdrafts available from £25,001 - £10 million.
• Invoice finance and asset finance available from £1,000 - £10 million.
• The government will guarantee 80% of the finance.
• No personal guarantees need for amounts up to £250,000 and no principal private residences to be accepted as security. 
• Term loans and asset finance available for terms up to six years.
• Overdrafts and invoice finance available for terms up to two years.
• Qualifying criteria are that the recipient should be a UK trader with a viable business (if not for the pandemic), that has suffered an impact due to Covid-19. The business should not be in a collective insolvency procedure.
• Banks, building societies, insurers, reinsurers, public sector bodies and state-funded primary and secondary schools are not eligible.

Microbusiness 'Bounce back' loans

• The loan is available to UK based small and medium-sized businesses to borrow between £2,000 and up to 25% of their turnover. The maximum loan available is £50,000.
• The government guarantees 100% of the loan and there won’t be any fees or interest to pay for the first 12 months. After 12 months the interest rate will be 2.5% a year. (See What's new below)
• The scheme is open to applications until 31 March 2021.
• The business must have been:
  • Established before 1 March 2020.
  • Adversely impacted by the Coronavirus.
  • Not an ‘undertaking in difficulty’ on 31 December 2019.
  • Not already claiming under the Coronavirus Business Interruption Loan Scheme or Corporate Financing Facility. 

Bounce Back loans

• In February 2021, the government announced extensions to repayment conditions on Bounce Back loans.
• As part of the Pay As You Grow scheme (originally announced by the Chancellor in September 2020) repayment flexibilities now include the option to delay all repayments for a further six months.
• Businesses can choose to make no payments on their loans until 18 months after they originally took them out.
• The option to pause repayments will now be available to all from their first repayment, rather than after six repayments have been made.
• Borrowers may extend the length of their loans from six to ten years (reducing monthly repayments by almost half).
• Make interest-only payments for six months, with the option to use this up to three times throughout the loan.
• Lenders will proactively and directly inform their customers of Pay as You Grow and borrowers should only expect correspondence three months before their first repayments are due.

See Apply for a Coronavirus Bounce Back Loan  

Coronavirus Business Interruption Loan Scheme

• Applies to UK based medium and large-sized businesses with a turnover of over £45 million.
• The government guarantees 80% of the finance to the lender.
• The scheme is open to applications until 31 March 2021.
• The same criteria and rules apply as for the SME CBILS. Banks, building societies, insurers and reinsurers (but not insurance brokers) and public-sector organisations, including state-funded primary and secondary schools are all excluded from the scheme.

See British Business Bank: Coronavirus Business Interruption Loan

Larger business: COVID-19 Corporate Financing Facility (CCFF)

• A lending facility for larger businesses to raise working capital via the purchase of short-term debt.
• The minimum amount of £1 million. 
• This will support companies who can show they were in 'sound financial health' prior to the COVID-19 shock, to enable them to continue financing their short-term liabilities.
  • 'Sound financial health' means a short-term credit rating of A3/P3/F3/R3 or above, or a long-term rating above BBB-/Baa3/BBB- by at least one of the major credit rating agencies.
  • If firms do not have an existing credit rating from one of the major credit rating agencies, they or their bank should get in touch with one of them to seek one. This should be in a form that can be shared with the Bank of England and HM Treasury and note that the reason for seeking the rating is so that the firm may use the CCFF.
• The Bank will also support corporate finance markets overall and ease the supply of credit to all firms.
• Businesses should start with their own banks. If they are not able to issue commercial paper there is a list of other banks who do with contact details on the UK Finance website.
• See Bank of England: COVID Corporate Financing Facility

Future Fund convertible loan scheme

• The ‘Future Fund’ scheme is operated by the British Business Bank and opened on 20 May 2020.
• It offers unsecured bridge government funding of up to 50% of the total bridge funding received by a company, where the remaining amount is provided by private third party investors. 
• To be open to companies with a UK economic presence who have raised at least £250,000 in the last five years.
• The bridge funding will automatically be converted into equity on the company's next qualifying funding round.
• The minimum lending from the Government under the scheme will be £125,000, up to a maximum of £5,000,000.
• The minimum interest rate for the government will be 8% and the loan will mature after a maximum of 36 months.
• The application deadline for loans from the Future Fund has been extended to 31 January 2021.

See COVID-19: Future Fund convertible loan scheme