Bailed-out businesses face dividend ban and limits on executive pay as the Government QUADRUPLES the size of coronavirus loans to £200m
- Maximum loans available to large companies to increase from £50m to £200m
- But firms taking them up will have to stop paying dividends
- They will also face limitations on executive pay, bonuses and share buybacks
- Here’s how to help people impacted by Covid-19
Published: | Updated:
Large businesses will be able to borrow up to £200million as the Government has quadrupled the size of loans available, but those taking them up will have to stop paying dividends and limit executive pay and bonuses.
The Treasury said the taxpayer-backed loans made available to large companies under the Coronavirus Large Business Interruption Loan Scheme (CLBILS) will increase from the previous maximum of £50million.
From next Tuesday, companies will be able to borrow up to 25 per cent of their turnover, up to a maximum of £200million, under the scheme. However, firms which take up the loans will be prevented from doling out cash to investors.
Loans expansion: Large businesses will be able to borrow up to £200million from Tuesday
Companies will still be able to pay out bonuses or increase salaries of its executives if they had been arranged before taking out the loan or if they are in line with similar payments done in the previous 12 months.
If companies can prove that paying out bonuses will not have ‘a material negative impact on the borrower’s ability to repay the loan’, then they can still do so.
The scheme, which was introduced last month by Chancellor Rishi Sunak, is for companies with a turnover of £45million or more.
It is aimed at those companies who are ineligible for the business interruption loan scheme for smaller firms and for the Bank of England’s Covid Corporate Financing Facility, which has been accessed by very large firms, such as easyJet.
The loans are 80 per cent backed by the Government and require banks to do several checks on the borrowers. The Treasury said today that lenders who wish to offer larger loans will need to undergo further accreditation checks.
Banks have approved only 86 of such loans so far, for a total of £590million, according to the Treasury’s latest data.
The restrictions on dividend payments, executive pay and share buybacks will also apply to very big companies applying to the Bank of England’s Covid Corporate Financing Facility for over 12 months.
A list of companies which have so far applied for the CCFF will be published on 4 June.
Economic Secretary to the Treasury John Glen said: ‘We’re determined to support businesses of all sizes throughout this crisis and our loans and guarantees have already provided over £32billion to thousands of firms.
‘Today we’re increasing the maximum loan to £200million to make sure companies get the help they need.’
The scheme, which was introduced last month by Chancellor Rishi Sunak, is for companies with a turnover of £45million or more
Suren Thiru, head of economics at the British Chamber of Commerce, welcomed the news and said the changes ‘could make a real difference’ to larger firms.
Stephen Jones, chief executive of UK Finance, the industry body representing banks, said they were committed to help businesses.
‘‘Banks stand ready to support businesses large and small, and the changes announced by HM Treasury means firms can access loans from £2,000 to £200million through the coronavirus loan schemes,’ he said.
Michael Izza, chief executive of the Institute for Accountants in England and Wales, said the increase in the size of the loans should make it attractive to more businesses.
‘So far fewer than 100 large businesses have accessed finance through CLBILS, so ministers are right to review how it is operating.’
And added: ‘The restrictions on eligibility, ownership, dividends and executive pay may dampen enthusiasm in some quarters, but I think it is fair that businesses which benefit from loans backed by public money should be expected to demonstrate corporate and social responsibility.’
Firms struggling due to Covid-19 receive over £22bn in loans
UK banks have handed out more than £22billion to companies as part of the Government-backed loan schemes since the coronavirus shut down large parts of the country’s economy.
Fast-track ‘bounce back’ loans, which are 100 per cent backed by the Government and are aimed at smaller firms, made up the largest slice of funding.
Nealry 465,000 business received bounce back loans worth £14.18billion so far.
The Coronavirus business interruption loan scheme has seen 40,564 loans worth £7.25billion approved, while the CLBILS only 86 loans worth £590million.
In total more than 580,000 businesses have applied for the bounce back loans, while 81,000 have asked for a CBILS loan, and 496 have sought a CLBILS.
Meanwhile, more than £11.1billion has been claimed to help keep staff on payrolls as part of the furlough scheme.
Eight million jobs have been furloughed under the Treasury’s job retention scheme. Another two million self-employed people have claimed a combined £6.1billion in support, the Treasury said.
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