In this short article we look at the Coronavirus Business Interruption Loan Scheme, and how this has been approved under the rules on EU State Aid. Whether you work for a commercial business, a social enterprise or a charity, we’d be happy to help you consider how State Aid and the wider rules on competition law could affect you, or provide assistance, during this difficult period.
It hasn’t been generally explained in the media, but the current scheme by the UK Government to support emergency business loans and grants to SMEs has been through emergency State Aid approval procedures with the European Commission. Although the UK is no longer an EU Member State, during the transition period we must still abide by EU law on state subsidies which means that financial assistance to businesses must comply with the State Aid framework.
The scheme, the “Coronavirus Business Interruption Loan Scheme” (or CBILS), was approved under a temporary framework to support the EU economy (the Temporary Framework) as a whole in the context of the COVID-19 outbreak and adopted by the Commission on 19 March 2020. The Commission recognises the likely impact of a sudden shortage or unavailability of liquidity on all businesses, with SMEs at particular risk – now and in the future. The wide-ranging implications resulting from financial harm to businesses is clear to us all. Banks and financial intermediaries are at the forefront of ensuring a flow of credit to all sectors of the economy and the Temporary Framework specifically condones measures taken by Member States to incentivise credit institutions to support the economy.
The Temporary Framework is in addition to the existing flexible application of the State Aid rules in times of crisis (most obviously last seen during the 2008 financial crash) and as set out by the Commission earlier in March 2020. For example, Member States can make changes in favour of businesses by offering loans at favourable interest rates, deferring taxes or subsidising workers’ salaries on a temporary basis across all sectors.
Returning to what the CBILS actually offers, it effectively consists of two support schemes. The first covers guarantees provided by the British Business Bank, a national bank, for up to 80% of loan facilities for SMEs with a turnover of up to £45 million. The second covers direct grants to support SMEs affected by the coronavirus outbreak and the scheme has an overall budget of £600 million. A grant must not be more than €800,000 (around £734,000) per company. CBILS will run until 30 September 2020, with the possibility for the UK Government to extend it (with the Commission’s approval) until 31 December 2020.
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