The government has announced the extension of the Recovery Loan Scheme for another two years, providing a guarantee for small business lending. Under this scheme, the government will cover 70% of the lender’s potential losses in case of default, offering a safety net for businesses.
The maximum loan amount remains at £2 million, aimed at supporting businesses as they recover from the impacts of the Covid-19 pandemic. While the scheme has already assisted nearly 19,000 businesses with an average of £202,000 in support, there are some changes to be aware of.
One significant update is that lenders may now require a personal guarantee from the borrower, putting their assets, such as their home, at risk if repayments are not maintained. This shift in liability aims to de-risk the government’s 70% guarantee and places more responsibility on business owners.
Despite the extension of the Recovery Loan Scheme, some experts have criticized it, labeling it as a “failure” for not going far enough to support small and medium-sized enterprises (SMEs). The requirement for personal guarantees and the potential impact of increased interest rates may deter businesses from taking advantage of the scheme, limiting its effectiveness.
To apply for the new Recovery Loan Scheme, businesses can access up to £2 million, with minimum funding thresholds set for different types of financing. Lenders will conduct credit and fraud checks before granting finance, with the government guaranteeing 70% of the funds while the borrower remains fully liable for the debt.
The scheme offers various types of financing, including term loans, invoice finance, asset finance, and revolving credit (overdrafts), catering to different business needs. Accredited lenders under the scheme have been outlined by the British Business Bank (BBB), providing a range of options for businesses to choose from.
Businesses can apply directly through their chosen lender, with the term of the finance depending on the type of funding sought. Overdrafts and invoice financing facilities can have a term of up to three years, while loans and asset finance facilities can extend up to six years.
As businesses navigate the challenges posed by the pandemic, the Recovery Loan Scheme aims to provide vital financial support to help them recover and thrive. Despite some criticisms and concerns, the scheme offers a lifeline for businesses looking to secure funding and drive economic growth in the UK.