The Recovery Loan Scheme has launched

The Recovery Loan Scheme has launched in the UK. The scheme supports access to finance for UK businesses as they grow and recover from the disruption of the unprecedented COVID-19 pandemic. The economic impact of the pandemic has been devastating. In 2020, GDP declined by a staggering 9.8%, the steepest drop since consistent records began in 1948. Since the beginning of the pandemic, the government has rolled out various schemes to help businesses survive the crisis. The aim is to keep businesses afloat, and in the process, protect as many jobs as possible.

The Recovery Loan Scheme is aimed at businesses of any size. It enables them to access loans and other finance options, which will help them recover from the pandemic. Up to £10 million is available per business, but the amount provided and the associated terms will vary depending on the participating lender. The government guarantees 80% of the finance to the participating lender, but businesses will be 100% liable to repay the loan as the borrower.

Who is eligible for the scheme?

Eligible businesses can apply for the scheme if they are trading in the UK. However, they must also show that the company would be viable were it not for the pandemic and that the pandemic has negatively impacted it. Applicants must not be in collective insolvency proceedings unless the organisation is in the scope of the Northern Ireland Protocol, in which different eligibility rules may apply. Businesses that received support under earlier COVID-19 guaranteed loan schemes can access financial assistance under the Recovery Loan Scheme, a source of relief for many.

How does the scheme work?

The scheme will be available through several different lenders, including but not limited to Barclays, Santander, NatWest, Bank of Scotland, HSBC, and more. You can review the participating lenders here. When new lenders are accredited, they will appear on the British Business Bank website.

A lender can provide a business with up to £10 million as a term loan, overdraft, invoice finance, or asset finance. The scheme gives participating lenders a government-backed guarantee against the outstanding balance of the facility. If a business borrows £250,00 or less, the lender will not take any form of personal guarantee from the borrower. However, if a company borrows over £250,000, the lender will decide whether they will take a personal guarantee. To learn more about the scheme, please visit the GOV.UK and the British Business Bank websites.

How has the scheme been received?

Several senior bankers have warned that the scheme had been off to a slow start. The Financial Times recently reported that applications were in the “low thousands” during the first few weeks of the scheme. Craig Beaumont of the Federation of Small Businesses has said: “this is a really important scheme, but there appears to be low take-up at the outset and some small businesses saying they are struggling to apply.”

He urged the government and participating banks to review the first month of operations. This will enable the government to streamline the application process if required. Some are hopeful that the minimum loan amount of £25,000 will reduce to better cater to small businesses. Several commentators have expressed hopes that the scheme will become more accessible as more lenders receive accreditation.

If you have any questions or need assistance, please get in touch.