UK companies backed by private equity capital are reportedly being denied access by banks to Covid-19 crisis loans, in a development that could impact large portions of the country’s education sector that are bankrolled by buyout capital.

Sky News reported that small- and medium-sized companies owned by private equity funds have been unable to tap an emergency funding scheme established by the UK government to grant interest-free loans to businesses affected by the coronavirus pandemic.

According to the report, some banks have told SMEs that their turnover exceeds £45 million – the Coronavirus Business Interruption Loan Scheme threshold – on the basis of an aggregated figure that takes into account other business owned by the same private equity parent.

A decision by banks, which are responsible for channelling public funds into eligible businesses, to deny government-backed loans to private equity-owned SMEs could harm dozens of UK education businesses, their shareholders and their employees. Organisations ranging from modestly sized nursery chains and private school clusters through to large pathway providers, apprenticeship providers and independent universities are backed by private equity funds, which indirectly employ thousands of staff in the sector. Much private equity cash is locked into companies with turnovers below £45 million.

When asked whether the report rings true, one partner of a UK-based private equity fund that owns several education businesses told this publication that "we haven't applied, but it is definitely consistent with what we are hearing".

Another source, whose fund owns a British education provider, said: "We've not tried, but I've heard that this is going on."

Sky News said it has seen an email from a manager at Lloyds Banking Group to a small business “indicating that the bank would not lend in cases where the majority shareholder is a private equity firm”.

Other high street lenders “are responding to private equity-owned applicants in a similar way”, Sky News reported.

In a statement to Sky News, Michael Moore, director-general of the British Venture Capital Association said: "As we understand, but not officially confirmed to us by the British Business Bank, the EU SME definition is being applied in its full-scope to eligibility for CBILS.
 
"We believe all businesses operating in the UK, including companies backed by private equity and venture capital, should have access to this support.
 
"Our analysis is there is legal flexibility available to countries in how they apply the SME definition, and we have very strongly urged the Government to use their discretion to ensure that CBILS is agnostic about company ownership or capital structure (except in relation to subsidiaries that are required under accounting rules to be consolidated into corporate accounts)."