Enterprise Finance Guarantee scheme (EFG)

The EFG scheme was established in 2009 and in 2017, it was extended until 2021. Run by the government's British Business Bank, the EGF is designed to increase the lending available for SMEs which do not have adequate security to access regular business loans. EFG loans are delivered through accredited business lenders, with the government, that is the taxpayer, underwriting 75% of the loan. This means that the lender is only exposed to part of the risk, however, the borrowing firm always remains liable for the debt and pays a 2% annual fee to the government. The repayment period for the loans ranges between three months and ten years. Besides the business loans, other funding options are also available under this scheme, such as revolving credit facilities (for example overdrafts), invoice finance, and refinancing and debt consolidation.

Response to COVID-19

In response to the COVID-19 pandemic, the UK government has introduced a number of temporary financial support measures to support businesses. The Chancellor, the Governor of the Bank of England, and the CEO of the Financial Conduct Authority together addressed Britain’s banking sector asking them not to allow viable companies to collapse because of the COVID-19 crisis.

The temporary measure supporting SMEs is the Coronavirus Business Interruption Loan Scheme (CBILS), also being run by the British Business Bank. Companies can access loans and other finances up to £5 million (€5.5 million as at 13 June 2020), 80% of which is underwritten by the government, however, the borrower is 100% liable for the debt. The scheme was launched in March 2020.  Since its introduction, it has been expanded and significantly modified with more businesses becoming eligible. The scheme is open to new applications until 30 September 2020. CBILS  allows UK-based SMEs with an annual turnover of up to £45 million (€49.5 million as at 13 June 2020), to access loans, overdrafts, invoice finance and asset finance of up to £5 million (€5.5 million as at 13 June 2020), for up to 6 years, to compensate for revenues lost or deferred because of the pandemic. The first 12 months of interest payments and any fees levied by the bank providing the loan are covered by the government, which means that businesses do not have any initial costs and they can benefit from lower initial repayments. The scheme is backed by the government-owned British Business Bank and delivered through 40 accredited commercial lenders, including all the major banks as well as other financial institutions. As with the EGF scheme, decision-making on eligibility for CBILS is fully delegated to the lenders.

The temporary schemes introduced as part of the response to the COVID-19 pandemic are the Coronavirus Large Business Interruption Loan Scheme (CLBILS) and the Covid Corporate Financing Facility (CCFF). The Coronavirus Large Business Interruption Loan Scheme is very similar to the CBILS but it is available for companies with an annual turnover over  £45 million (€50 million as at 13 June 2020). The available loan and other finance can be up to 25% of the company’s turnover, to a maximum of £200 million (€220 million as at 13 June 2020). Businesses borrowing more than £50 million (€55 million as at June 2020) are subject to restrictions on dividend payments, senior pay and share buy-backs during the period of the loan. The deadline for submitting applications to the CLBILS is 20 October 2020 (as at 24 August 2020).

The  Covid Corporate Financing Facility (CCFF) was launched by the Bank of England and the Treasury in March 2020 and it is open to new applications until March 2021. The scheme aims to help businesses to pay wages and suppliers, even while experiencing severe disruption to cashflows. The scheme offers financing on terms comparable to normal market terms available to companies before the COVID-19 crisis, and it is open to firms that can demonstrate that they were in good financial health prior to the crisis: eligibility is based on firms’ credit ratings on 1 March 2020.