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    HM Treasury to Implement Relaxed EU State Aid Rule from July-End

    July 30, 2020

    HM Treasury published a letter that discusses the recent change to the EU State Aid rules, highlighting that more small businesses can now access government-backed loans. The letter, which is from HM Treasury and the Department of Business, Energy & Industrial Strategy, is addressed to UK Finance. EC has relaxed its State Aid rules so that small and micro businesses will be exempt from elements of the "undertaking in difficulty" test and are now eligible for the Coronavirus Business Interruption Loan Scheme (CBILS). The letter sets out the expectations that all accredited CBILS lenders will implement the changes, noting the consequence that businesses whose CBILS applications they have previously declined may now be eligible. Lenders will shortly be receiving guidance on how to identify undertakings in difficulty.

    The letter states that businesses that were categorized as "undertakings in difficulty" under the EU State Aid rules were unable to access CBILS. As per the Temporary State Aid Framework, under which CBILS is notified, financial support cannot be awarded to businesses which were "in difficulty" at the end of 2019. By working with key industry bodies, the government sought changes from EC to ensure that businesses that were viable before the COVID-19 outbreak would be able to access support through CBILS. EC has now amended the Temporary Framework to allow such support to micro and small businesses, which were classed as undertakings in difficulty on December 31, 2019. Businesses in this category that have fewer than 50 employees and a turnover of less than GBP 9 million can now apply for CBILS.

    The government is working to reflect these changes in the rules for the loan schemes and the changes are due to be in effect from July 30. The letter states that all accredited lenders are expected to implement these changes in their own decision-making processes. This will ensure that even more businesses are receiving support at this difficult time, keeping in mind that lenders may now be able to offer CBILS facilities to businesses that were previously ineligible. Additionally, it has been decided not to amend the rules for the Bounce Back Loan Scheme (BBLS) because BBLS facilities are already available to undertakings in difficulty. The government has been doing more to help viable businesses that have so far been unable to secure government-backed financial support. The British Business Bank will soon circulate new guidance with lenders on identifying undertakings in difficulty, which should be helpful in clarifying how to approach the various elements of the test.

     

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    Keywords: Europe, UK, Banking, COVID-19, CBILS, Loan Guarantee, Credit Risk, State Aid Rules, SME, Temporary Framework, EC, HM Treasury

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