The Treasury is gearing up to unveil its successor to the Recovery Loan Scheme, a £6bn business loan guarantee scheme, as small businesses brace for an impending recession.
Expected to be approved by both the Treasury and the business department, the new scheme, known as RLS2, aims to provide up to £3bn of debt annually over a two-year period. While less generous than its predecessor, the scheme is designed to support small and medium-sized businesses struggling to secure financing in the wake of the pandemic.
The original Recovery Loan Scheme, which offered a 70 per cent government guarantee for loans up to £2m, concluded on June 30, leaving many businesses in a state of uncertainty. Despite nearly £80m being lent to SMEs through various Covid loan schemes, only £1bn was through the Recovery Loan Scheme.
According to research from the Federation of Small Businesses (FSB), lending to small businesses has hit an all-time low, with just 43 per cent of loan applications being approved. Additionally, only nine per cent of small businesses applied for finance in the first quarter of 2022, marking the lowest proportion since the FSB began tracking SME lending.
The release of RLS2 has been delayed due to efforts to enhance fraud protections following significant losses on Covid support. This comes as it was revealed that nearly 200,000 small businesses are currently in arrears on their Bounce Back Loan repayments, amounting to £5.7bn in outstanding debt.
Of the businesses in arrears, 151,587 are behind by more than 90 days, signaling serious financial distress. The government estimates that £4.9bn of Bounce Back Loans may be lost to fraud. Todd Davison, managing director of Purbeck Personal Guarantee Insurance, highlighted the potential repercussions of the ease with which businesses secured Bounce Back Loans.
While concerns about loan repayment persist, the British Business Bank reported that over 85 per cent of facilities across the three Covid loan schemes have either been fully repaid or are meeting monthly payments as scheduled. The BBB plans to release updated repayment figures in the coming month.
As the small business landscape continues to navigate financial challenges, the introduction of RLS2 aims to provide much-needed support to businesses in need of funding. Stay tuned for more updates on the evolving financial support landscape for small businesses.