What is the recovery loan scheme for businesses?
With the ongoing long-term economic impact of COVID-19 still far from over, the government’s Recovery Loan Scheme aims to help businesses recover from the loss of income they have experienced over the last year and potential difficulties in the coming months. On 3 March, the Treasury announced that applications for the new scheme will open from 6 April 2021 and continue until the end of the year, subject to review. Available for businesses of all sizes, a loan taken under the scheme can be used for any legitimate business purpose. With existing COVID-19 loan schemes due to end, what do businesses need to know about the new Recovery Loan Scheme?
What options are available through the Recovery Loan Scheme?
Over the last year, many business owners may have already sought financial help from the government to ease the burden of ongoing lockdown restrictions, including personal borrowing options such as personal loans, short term loans and payday loans in the UK to help ends meet. The good news with the Recovery Loan Scheme is that if a business already receives financial support from COVID-19 guaranteed loan schemes, they may still be eligible for this scheme as long as the business trades in the UK and can prove it has been impacted by the ongoing pandemic. Businesses will also need to prove they are viable and currently not in collective insolvency proceedings. If so, term loans and overdrafts are available between £25,001 and £10 million, as well as invoice finance and asset finance available between £1,000 and £10 million per business.
The government will guarantee 80% of the finance to the lender a business applies through, ensuring, like with other COVID-19 loan schemes, that they can be provided in confidence. If a business wishes to use part or all the funds for growth and investment they can do, as long as there is a legitimate business reason to do so. The names of the accredited lenders have yet to be disclosed, but many it’s expected would have also provided similar loan schemes over the past year.
How long will the loans last?
For businesses who apply through the Recovery Loan Scheme and choose a term loan or asset finance, these can be repaid for up to six years. With an overdraft and invoice finance facility, the maximum term can be three years. Businesses will not have to provide a personal guarantee on facilities up to £250,000 in value, and the business owner cannot use their private residence as security either. Once the scheme opens on 6 April, there are some businesses that will not be eligible to apply, including banks, building societies, insurers and reinsurers, however insurance brokers are welcome to apply. Any public-sector bodies and state-funded primary and secondary schools are also excluded.
The Recovery Loan Scheme should help to provide a much-needed source of income for many UK businesses, coming at a time when the vaccination roll-out is on course to offer every UK adult a vaccination by the end of July, and the government’s roadmap aiming to lift all remaining restrictions by mid-June. The question is, has the support come too late for some businesses and will their financial future only be fully secure once regular trading resumes, as hoped, later this year.
For more information on funding and support for businesses, please visit the UK Government business support pages.
