The Recovery Loan Scheme, a government initiative that provides a guarantee for small business lending, has recently been extended for an additional two years. Under this scheme, the government will back 70% of the potential losses that lenders could incur in the case of default. The maximum loan amount available remains at £2 million.
Initially launched in April 2021 to assist businesses in recovering from the impacts of the Covid-19 pandemic, the Recovery Loan Scheme has already supported nearly 19,000 businesses with an average loan of £202,000. The extension of the scheme aims to continue providing vital financial support to small businesses across the UK, stimulating local economies, creating job opportunities, and driving overall economic growth in the country.
However, there have been criticisms of the new Recovery Loan Scheme, with some experts labeling it as a “failure.” The requirement for a personal guarantee from borrowers has raised concerns, as it shifts the risk back onto business owners and may deter them from seeking financial assistance. Gregory Taylor, Head of Banking and Finance at MHA, expressed disappointment in the limited scope of the extension and the potential impact of personal guarantees on small businesses.
David Fleming, UK Head of Restructuring at Kroll, highlighted the low uptake of the previous scheme due to its restrictive terms. He also noted that the increased interest rates and the need for personal guarantees under the new scheme could further deter businesses from applying for loans. Given the scrutiny surrounding Covid loan repayments, banks may face challenges in extending loans to customers outside of regular banking terms.
Under the new Recovery Loan Scheme, businesses can access up to £2 million, with the minimum funding requirements varying based on the type of finance sought. The government guarantees 70% of the finance to the lender, while the borrower remains fully liable for the debt. Interest rates and fees are capped at 14.99% annually.
The British Business Bank has provided a list of accredited lenders offering term loans, invoice finance, asset finance, and revolving credit (overdrafts) under the new scheme. Businesses can apply directly through their chosen lender, with the application process varying depending on the type of finance sought.
The term of the loan also varies based on the type of finance, with up to three years for overdrafts and invoice financing facilities, and up to six years for loans and asset finance facilities.
In conclusion, while the extension of the Recovery Loan Scheme aims to provide continued support to small businesses, concerns remain regarding the impact of personal guarantees and the potential barriers to accessing finance. Businesses are advised to carefully consider their options and seek advice from financial experts before applying for loans under the scheme.