European Commission Approves UK Emergency State Aid for SMEs Affected by COVID-19

UK emergency state aid measures for small and medium-sized enterprises related to the coronavirus (COVID-19) pandemic will include direct grants and guarantees covering 80% of loan facilities.

The European Commission on March 25 approved UK emergency state aid measures for small and medium-sized enterprises (SMEs) affected by the COVID-19 pandemic, under the March 19 state aid temporary framework (Temporary Framework) adopted by the Commission to support the economy amid the COVID-19 pandemic. One scheme offers guarantees covering 80% of loan facilities for companies with a turnover of up to £45 million (approx. $53 million; €49 million), while a second involves direct grants to SMEs from an overall budget of £600 million (approx. $712 million; €654 million).

Under the UK Withdrawal Agreement for the United Kingdom’s exit from the European Union on December 31, 2020 (unless extended), during the transition period leading up to the withdrawal, the entire body of EU law continues to apply to, and in, the United Kingdom as if it were an EU member state. This includes all EU rules relating to state aid.

The United Kingdom notified under the Temporary Framework two separate UK state aid schemes to support SMEs affected by COVID-19. The United Kingdom will set up the so-called Coronavirus Business Interruption Loan Scheme (CBILS), which will provide the following:

• Guarantee Scheme: Guarantees that cover 80% of loan facilities for SMEs with a turnover of up to £45 million to cover their working and investment capital needs. This scheme will be implemented through the British Business Bank, a national promotional bank.
• Direct Grants: Direct grants to support SMEs affected by COVID-19. The overall budget for this scheme is £600 million. The beneficiaries of the schemes are SMEs active in all market sectors having temporary financial difficulties due to the economic impact of the COVID-19 outbreak.

The Commission found that the two UK schemes are in line with the conditions set out in the Temporary Framework:

• With respect to the guarantee scheme, (1) the underlying loan amount per company is linked to the company's liquidity needs for the foreseeable future, (2) is limited to a maximum six-year duration, and (3) entails a guarantee premium that is at least as high as that set in the Temporary Framework. Furthermore, the scheme includes safeguards to ensure that the advantages of the guarantee are effectively passed on to the borrowers and that the lending is used to cover short- to medium-term liquidity needs.
• With respect to the direct grants, the support per company will not exceed €800,000 (around £734,000; $872,000) per company as foreseen by the Temporary Framework. Furthermore, the grant amount per company is linked to the market sector in which the company is active, as also foreseen by the Temporary Framework.

The schemes will initially run until September 30, 2020, with the possibility for the United Kingdom to extend them until December 31, 2020.

The Commission concluded that the measures are necessary, appropriate, and proportionate to remedy a serious disturbance in the economy of a member state, in line with Article 107(3)(b) for The Functioning of the European Union (TFEU) and the conditions set out in the Temporary Framework. On this basis, the Commission approved the measure under EU state aid rules.

The two schemes will help target support and much needed liquidity to many SMEs currently feeling the economic effects of the COVID-19 pandemic.

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Leonidas Theodosiou 

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Izzet Sinan

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