Posted: 21 Apr. 2020 8 min. read

COVID-19 Update for High Growth Companies – Government Financing Overview

In response to the COVID-19 crisis, the Government announced a number of support initiatives to help UK businesses. The Coronavirus Business Interruption Loan scheme (CBILS) is one such measures, and is of particular relevance to our high growth audience. Therefore, on a recent webinar we held, our Government financing overview focussed primarily on CBILS due to time restrictions. However, for more information please do visit Deloitte’s Government funding response to COVID-19 webpage that is updated regularly and packages all of the Government’s funding options in one place. 

Deloitte Private High Growth held a webinar for founders and CXOs of fast growing businesses to discuss COVID-19 and its impact on the high growth sector. I was delighted to join as a speaker and share a few key insights around the government financing response. 

Who is it aimed at? 

CBILS is aimed at companies with a group turnover of up to £45 million, and it offers loans of over £1,000 to £5 million, with the fees and first 12 months interest paid by Government. 

Since its initial announcement, there have been several major changes to the CBILS scheme, which perhaps goes some way to explaining why the take up of the CBILS loan scheme has been slow to start. On the day of our forum there were over 130,000 enquires under this loan scheme. Around one thousand loans had been granted for a total of £90million, which means that on average each loan was worth £90,000. At the other end of the scale, the investment grade end of the spectrum, £1.9billion had already been distributed in a week by COVID Corporate Financing Facility (CCFF). As of last Thursday these figures had increased to £2.8bn and £10.7bn respectively.

Why has the take up and the success rate of these loan applications under CBILS been weaker and what is it that we can do about it? 

There have been major changes, but the first one has been to extend the scheme to all businesses that meet the eligibility criteria, not just those that can’t secure commercial financing. The second change was made to the personal guarantees, which were a controversial issue. The Government continues to review the criteria and is also seeking to simplify the requirements around viability, to further streamline applications for borrowers.

How do you apply?

  • First and foremost, make sure that you’re eligible. You have to be a UK- based SME, as mentioned earlier you can have a turnover of up to £45 million, and your business must generate more than 50% of its turnover from trading. 
  • Establish what the funding requirement is and demonstrate that you’ve taken some of those actions before, or as part of, that application.
  • As it is a distributed schemes, with over 40 accredited lenders, make absolutely sure that the nuances and requirements of individual lenders are taken into account. 

Here are some of our distilled learning points on applying for CBILS:

Firstly, again, you need to make sure you fit the eligibility criteria. It’s worth not only making sure that you’re eligible, but also that you can prove your eligibility. 

Secondly, and this can be tricky, you must be able to validate that if it were not for the pandemic, the business and the borrowing proposition would be viable. Our suggestion, and of course there are limitations in what you can do here, is to try to prove that it was a viable business before COVID-19 then demonstrate to the banks exactly what has happened since. We are aware that the Government is seeking to simplify this.

Thirdly, and again this is true of all loan applications and is especially true of this, try and make things as simple as possible to prove to the lenders that the business will be able to trade out of these problems. Our suggestion is to do sensitivity analysis around revenues, around cost reductions, etcetera. Essentially stress test your business. That is going to be even more difficult for some businesses, (especially smaller ones), but nevertheless a successful application will get this right, and make it as easy as possible for the bank to approve the application.

Will CBILS still be effective for loss-making businesses? 

This is a really common question we’re seeing from high growth businesses. 

If you are less than three years old and in an early stage or if you’re pre-revenues, then the golden rule is that you should be able to demonstrate that you can service the loan and then repay the loan. 

If you are a loss-making business over three years old you need to ensure you are not an “undertaking in difficulty” as at 31st December 2019. This is a technical test of viability and a key criteria of the scheme. There are a number of specific rules around this, but the key one is that your accumulated losses cannot exceed 50% of share capital. This is often a blocker to loss-making businesses, before lenders even consider it from a commercial perspective.

What about companies who are VC or PE backed?

There have never been any specific restrictions on PE / VC backed businesses accessing the scheme. However, the initial approach on definition of Group saw portfolios of PE backed businesses being consolidated for the tests. This was amended with the launch of the Coronavirus Large Business Interruption Loan scheme (CLBILS), so now Group is examined on a more conventional / asset by asset basis. Due to the structure of a lot of PE or VC backed businesses the undertaking in difficulty test can still represent a challenge.

Coronavirus Large Business Interruption Loan scheme

When we held our webinar the CLBILS scheme was still being worked on. CLBILS was formally launched on 20th April without any upper turnover limit, ensuring Government support would potentially be available to all companies in the UK. CLBILS has taken a lot of the learnings from its sister scheme and applies a suit of similar eligibility criteria. CLBILS offers loans of up to £25m for business with Turnover of £45-250m and up to £50m where Turnover is over £250m.

The UK Deloitte Private High Growth team is running monthly webinars with experts from across the business to offer practical considerations for Founders and CXOs. You can register for our next webcast here.

Finally, Deloitte has pulled together a useful framework on resilient leadership and provides practical and specific steps that can help blunt the crisis’s impact—and enable organizations to emerge stronger, you can access the guide in full here.

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Key contact

Chris Skinner

Chris Skinner

Partner, Debt, Capital & Treasury Advisory

Chris was a founding member of Deloitte’s Debt, Capital & Treasury Advisory business in 2005, focusing on providing independent advice to mid market companies undergoing debt raising exercises. Chris also leads Deloitte's Private Equity portfolio company programme in the UK. Prior to joining Debt, Capital & Treasury Advisory Chris worked in Deloitte’s Reorganisation Services practice where he was involved a wide range of challenging transactions. Having been one of the four original members of the team, Deloitte'sDebt, Capital & Treasury Advisory business has now grown to over 180 people across the globe. Chris is a Chartered Accountant, a member of the Securities and Investment Institute and an associate member of the Association of Corporate Treasurers.