CITM3060 - Investment by CDFI: Loans to profit-distributing enterprises

SI2003/96 Schedule 1(2) & (3)

Loans to profit-distributing enterprises are not ‘relevant investments’ for the purposes of SI2003/96 Regulation 8 (see CITM3030) if:

• the loan exceeds £100,000, or
• is not made on terms equivalent to those offered by conventional sources of finance, or
• the loan is not made at interest rates at or above the market rates, or
• where no interest is charged, the fee structure relating to the loan is not at or above the equivalent market level.

For these purposes the ‘market rate’ of interest is the European Commission’s Hurdle Rate, which is the Reference Rate (see http://europa.eu.int/comm/competition/state_aid/others/reference_rates.html) plus four percentage points, or more.

Where the £100,000 limit is breached

• as a result of two or more loans being made on the same day, or
• in circumstances where it is not possible to establish which loan caused the limit to be exceeded,

the Director of Enterprise Environment at the Department for Business, Enterprise & Regulatory Reform (BERR) Enterprise Directorate will determine which of those loans are not to be treated as relevant investments. The determination will seek to minimise the amount of those loans that are not relevant investments.

Companies registered as Community Interest Companies (CICs) will be regarded as non- profit-distributing enterprises for the purposes of CITR.