UPDATE - COVID-19: Funding options available to Northern Ireland businesses

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The scale of the challenge faced by the financial services industry as a result of the COVID-19 crisis is enormous. Regulators have indicated that they will be willing to show some flexibility – the regulators’ response will no doubt be watched with interest. We have set out below a brief summary of the updated financial support packages currently available in Northern Ireland, with some commentary for the benefit of both lenders and businesses.

Coronavirus Business Interruption Loan Scheme (CBILS) – SMEs

Temporary scheme delivered through British Business Bank and the list of some 40 participating lenders is available through the link below.
CBILS is available to existing EFG (Enterprise Finance Guarantee) accredited lenders and in due course to newly accredited lenders.
Government will provide Lenders with a guarantee of 80% on each loan (subject to per-lender caps).
Scheme will support loans of up to £5 million in value, including term facilities, overdrafts, invoice finance and asset finance.
Available to UK based SMEs with turnover no more than £45 million per annum.
Businesses can access the first 12 months of that finance interest free – government will cover first 12 months of interest payment.
Businesses remain responsible for the repayment of the facility.
Finance terms are up to 6 years for term loans and asset finance facilities. For invoice finance and overdrafts, terms will be up to 3 years.
At discretion of lender, scheme may be used for unsecured facilities of up to £250,000.
Scheme open for applications from 23 March 2020 and will initially run for 6 months – accessed directly through banks/participating lenders and not through British Business Bank.

Our Comments:

This scheme is not operating as a ‘bail-out’ but provides an alternative method of accessing finance. There remains an obligation on participating lenders to follow their internal credit procedures and due diligence processes to analyse the underlying business performance. The applicant needs to be able to demonstrate they have a viable business and financial information, business continuity plans, asset details and cash flow forecasts will need to be provided to evidence the ability of the applicant to trade out of the short-to-medium term difficulty.

Borrowers should expect when seeking access to the CBILS that participating lenders will still need to follow their required documentation process and put in place any additional security. It appears that lenders will be expected to show compliance with core regulatory requirements. There may be some participants who do not charge arrangement fees or early repayment charges under the scheme.

Access to the CBILS has recently been extended to make it available to companies regardless of whether they could secure commercial financing outside of the scheme. For facilities below £250k, lenders are not permitted to take personal guarantees. For larger facilities, personal guarantees may be required however recoveries are capped and principle private residences cannot be secured under the scheme.

Lenders may also in the background be considering compliance with state aid rules which have been updated in the context of the COVID-19 outbreak and adopted by the European Commission under a temporary framework (UK continues to be bound).

Please find further information here.

Coronavirus Large Business Interruption Loan Scheme (CLBILS)

The SME Scheme has now been expanded to reach the many large UK companies which fell between the gap of the CBILS and the CCFF (applying only to investment grade).
Facilities backed by government backed guarantee of 80% on each loan.
CLBILS will provide loans of up to £25million to businesses who are UK based in their business activity.
Facilities will be offered at commercial interest rates.
Available to companies in nearly all sectors with an annual turnover between £45million and £500million.
Businesses must be unable to secure standard commercial financing.
Full details and launch date to become available during April 2020.
Delivered through the British Business Bank and its participating commercial lenders.

Our Comments:

Other than as set out above, the scheme is expected to be launched on a similar basis to that in place for SMEs. Again, participating lenders will be required to follow their usual credit procedures and due diligence processes to analyse the underlying business performance. The applicant needs to be able to demonstrate that they have a viable business but are facing significant cash flow difficulties that would otherwise make their business unviable in the short term.

Please find further information here.

COVID Corporate Financing Facility (CCFF) – Large Business

Bank of England will buy short term debt from larger companies – supporting corporate finance markets.
This facility is available to investment grade businesses – provides funding by purchasing commercial paper of up to one-year maturity on similar terms to those prevailing prior to COVID-19 crisis (businesses do not need to have previously issued commercial paper in order to participate).
Issuers will be firms making a material contribution to the UK economy falling within the eligibility criteria.
It will be taken into account whether the businesses are UK incorporated, have significant employment within the UK and are generating substantial revenue within the UK. This also applies to businesses with parent companies who are incorporated elsewhere.
Open to businesses demonstrating sound financial health prior to COVID-19 crisis – will consider temporary impacts on firms’ balance sheets and cash flows by basing eligibility on firms’ credit ratings prior to the COVID-19 shock.
Scheme will operate for at least 12 months.
Scheme available from 23 March 2020 – issuers should contact the Bank of England at applications@bankofengland.co.uk.

Please find further information here.

Our Comments:

This scheme is open only to businesses with an investment grade rating and Bank of England are looking at alternatives under short term and indicative ratings.

Coronavirus Job Retention Scheme

HMRC will reimburse 80% of ‘furloughed workers’ wage costs, up to a cap of £2,500 per employee per month.
HMRC are working to urgently set up a system for reimbursement and all UK businesses are eligible, irrespective of business size or sector.
This scheme is designed to help employers meet the wage costs of employees who are not working without having to make redundancies.
Employers will be required to designate affected employees as ‘furloughed workers’ (i.e. employees who are sent home with temporary leave) and to notify relevant employees of this change.
Employers will need to submit information to HMRC through a new online portal.
The scheme will be back dated to 1 March 2020 and payments are due to start by end of April.
Detailed guidance is due to be issued shortly and further information is available through the following link.

Our Comments:

The redesignation of an employee remains subject to employment law and, depending on individual employment contracts, may be subject to negotiation.

The scheme may include a mechanism to address the position of zero hours workers and other employees who may not be entitled to receive standard rates of pay. HMRC recognise their existing systems are not set up to facilitate payments to employers, and businesses should be aware that there may be a funding gap between the payment of wages and the eventual receipt of the reimbursement which they could be required to finance, particularly during the initial roll out.

Self-Employment Income Support Scheme

When the Coronavirus Job Retention Scheme was announced there was wide-spread concern over the absence of a similar provision for the self-employed. The UK government has now passed an amendment to the Coronavirus Act 2020 (certain provisions of which apply to Northern Ireland) which makes such a provision. The government has now guaranteed a direct cash grant of:

80% of the profits of a self-employed individual or member of a partnership, averaged over the last three years and up to a maximum of £2,500 per month.

The scheme is expected to be available by June 2020 by way of a single lump sum to cover the prior three-month period of disruption. This may be extended if the disruption continues after June 2020. Self-employed individuals or those who are in a partnership must meet certain criteria as follows in order to be eligible for the grant:

Self-employed trading profits must be less than £50,000 in 2018-19 or an average trading profit less than £50,000 average over 3 years from 2016-19.
More than 50% of the self-employed individual’s income must be sourced from self-employment.
Must have lost trading profits due to the COVID-19 outbreak and intend to continue to trade in the tax year 2020-21.
Must have been self-employed prior to the COVID-19 outbreak and have submitted an Income Tax Self-Assessment tax return for the tax year 2018-19.

Individuals who pay themselves a salary and dividend are not covered by this scheme.

Please find further information here.

Grants

Small businesses eligible for the Small Business Rate Relief Scheme, with a Net Annual Value (NAV) of up to £15,000 are eligible for cash grants of £10,000.
Medium businesses with a rateable value of between £15,000 and £51,000 in the most affected sectors, being, hospitality, tourism and retail will be able to access an immediate grant of £25,000 under the Hospitality, Tourism and Retail Sectors Grant Scheme.

Please find further information here.

Business Rate Relief

Northern Ireland Executive to waive business rates for 3 months between April – June 2020.
Applies to all NI businesses.
Department of Finance are deferring issue of rates bills for 2020/21 from April until June 2020.

Please find further information here.

HMRC

Support will include a ‘Time To Pay’ service with HMRC.
To be agreed on a case by case basis tailored to circumstances.
Tax self-assessments payments due 31 July 2020 will be deferred to 31 January 2021
This will help those businesses and self-employed people who are struggling with cash flow who may enter into arrangements to spread liabilities owed over a pre-agreed period.
HMRC will waive late payment penalties and interest in the deferral period.

Please access the HMRC dedicated helpline for further information.

Lender Support Packages

Alongside the measures introduced by the government, most lenders operating in the local market in Northern Ireland have designed packages to assist business customers who require financial help throughout the crisis. Some examples of the support mechanisms available include working capital extension facilities, short term capital and interest loan repayment holidays and payment flexibility on business loans. The majority of lenders are prioritising funding requests at this time to ensure that support is rolled out as quickly as possible.

Individuals Mortgage Payments

Mortgage lenders have agreed that they will support customers through payment holidays of up to 3 months.
Please note that customers must demonstrate that they are in financial difficulty to qualify for the payment holiday – this is not an automatic relief.

Interest Rates

Interest rate cut to 0.1%.

There are numerous financing issues to be considered and the support packages available are evolving on a continuous basis. Please do get in touch to discuss the legal aspect of any financing or restructuring queries you may have.

This article has been produced for general information purposes and further advice should be sought from a professional advisor. Please contact our Banking & Finance team at Cleaver Fulton for further advice or information