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Coronavirus Large Business Interruption Loan Scheme extended

The Government has announced that the maximum loan available under the Coronavirus Large Business Interruption Loan Scheme (CLBILS) has been increased from £50 million to £200 million. 
 
The scheme was introduced to bridge the gap between the Coronavirus Business Interruption Loan Scheme (CBILS) aimed at businesses with a turnover of up to £45 million and the Bank of England backed Coronavirus Corporate Finance Facility aimed largely at listed businesses.  
 
Borrowers under CLBILS will be able to borrow up to the lower of 25% of turnover or £200 million, while lenders who wish to offer larger loans will need to undergo further accreditation checks.
 
The increase in the size of the loan available is accompanied by some additional conditions which do not apply to the CBILS scheme.  The restrictions will apply to loans over £50 million and include:
 
• Dividends: Borrowers cannot make any dividend payments during the term of the loan
• Share buyback: Borrowers cannot agree any share buybacks during the term of the loan
• Executive pay: Borrowers cannot pay any cash bonuses or award any pay rises to senior management (including the board) during the term of the loan except where they
a) were declared before the CLBILS loan was taken out, 
b) are in keeping with similar payments made in the preceding 12 months, and 
c) do not have a material negative impact on the borrower’s ability to repay the loan.
 
Full details of the restrictions will be available in due course and the larger loans will be available from 26 May.
 
WR comment – the CLBILS scheme is only really relevant to those business that do not qualify for the CBILS scheme.  It is however interesting that restrictions will accompany the larger loans – clearly there is concern in Government that some borrowers will not use the loans to support their businesses but will instead seek to use them to pass cash to senior management and shareholders.  Whether or not this concern is valid these restrictions have the potential to make this scheme significantly less attractive for owner managed businesses looking to borrow over £50 million which may potentially be repayable over a number of years.
 
19 May 2020 | Written by Paul Brown, Tax Partner 

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