The UK Treasury is gearing up to unveil its new £6 billion scheme to replace the Recovery Loan Scheme, targeting small businesses struggling amidst an impending recession.
Expected to be approved by the Treasury and the business department in the coming days, the successor scheme, known as RLS2, will offer up to £3 billion annually over a two-year period. While it may not be as generous as its predecessor, it aims to provide much-needed financial assistance to small and medium-sized enterprises.
The original Recovery Loan Scheme, which provided a 70% government guarantee for loans up to £2 million, came to an end on June 30, leaving many businesses in a state of uncertainty. Lending to small businesses has hit a record low, with only 43% of applications being approved, according to research from the Federation of Small Businesses (FSB).
Furthermore, the number of small businesses applying for finance has also decreased, with only 9% submitting applications in the first quarter of 2022 – the lowest proportion since FSB began tracking SME lending.
The delay in launching RLS2 can be attributed to efforts to strengthen fraud protections following substantial losses on Covid support. In a recent development, it was revealed that nearly 200,000 small businesses are in arrears on their Bounce Back Loan repayments, highlighting the financial challenges faced by many SMEs.
According to Purbeck Personal Guarantee Insurance, a significant number of businesses have failed to meet their repayment obligations, with outstanding debts totaling £5.7 billion. This includes 151,587 firms that are more than 90 days behind on payments, indicating serious financial distress.
While the government estimates that around £4.9 billion in Bounce Back Loans may be lost due to fraud, the British Business Bank reports that over 85% of facilities under the Covid loan schemes have either been fully repaid or are meeting monthly payments as scheduled.
In conclusion, the introduction of the new business loan guarantee scheme is crucial for supporting small businesses during these challenging times. With ongoing efforts to combat fraud and ensure financial stability, the government aims to provide much-needed assistance to struggling SMEs. Stay tuned for more updates on the official repayment figures from the British Business Bank.