Treasury set to lift cap on loans for ‘squeezed middle’ companies

Ministers are preparing to offer new help to the “squeezed middle” of larger British companies by sharply lifting the cap on state loans available during the coronavirus crisis.

Treasury officials are drawing up plans to increase the amount of money that midsized businesses can draw on under the Coronavirus Large Business Interruption Loan Scheme (CLBILS), according to two people familiar with the talks.

At the moment, companies with a turnover of more than £250m can apply for up to £50m in state-backed bank loans, which some larger groups have warned will not be enough to see them through the crisis. 

One proposal would see the amount that can be borrowed by companies quadrupled to £200m, meaning a significant boost to the funding available for struggling companies.

The move could provide a lifeline for many businesses, including Britain’s biggest steel company, Tata Steel, which has been lobbying the Treasury for the cap to be lifted.

Tata’s UK arm, which employs 8,500 people, warned ministers last month that the £50m threshold was too low, given that the company needed to borrow several hundred million pounds to cover the severe disruption from the coronavirus lockdown.

The business has long struggled to compete against cheaper imports from overseas and Tata nearly sold it in early 2016.

The revamp is also likely to help a swath of operators including airports and leisure industry companies that need much larger loans than £50m.

According to data released on Tuesday — the first since the scheme went live three weeks ago — just £359m has been lent to 59 midsized and larger UK businesses, much less than any other part of the government’s loan programme.

CLBILS gives the lender a government-backed partial guarantee of 80 per cent against the outstanding balance of the facility, and the borrower remains fully liable for the debt.

But bankers say that as many as 10,000 companies should be able to claim help under the scheme. It was designed for businesses that are too small and lack an investment grade rating to access the commercial paper scheme that the government has devised for the largest British groups, which is administered through the Bank of England.

One government aide said that Rishi Sunak, the chancellor, had publicly indicated that he was open to tweaking the scheme to bring it in line with the commercial paper scheme. “Rishi did say that we are looking at ways to make sure that we narrowed the gap between CLBILS and the Bank of England scheme,” the aide said.

The most popular parts of the government’s bailout programme are aimed at small companies, with figures this week showing that almost £8.4bn was lent to the UK’s micro businesses under its Bounce Back Loan Scheme (BBLS) in just the first six working days. 

The Coronavirus Business Interruption Loan Scheme, which is for companies with a turnover of less than £45m, has now lent about £6bn.

The first few weeks of this scheme were hamstrung by strict conditions and limits that made it difficult for companies to gain access to the loans, but a series of revisions by the Treasury has meant that the money is now flowing to distressed companies more quickly from the banks. 

 

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