Recovery loan scheme extended for 2 years
The government has extended the Recovery Loan Scheme for small businesses for a further two years but has added a requirement for a personal guarantee from borrowers
The recovery loan scheme, originally launched in April 2021, has supported almost 19,000 businesses with an average of £202,000 in support. British Business Bank figures show that £4.5bn has been lent as a result of the scheme although only £3.83bn in funds has been drawn down.
What was the purpose of recovery loan scheme?
The government scheme is aimed at supporting access to finance for UK businesses. It gives lenders a government-backed guarantee against the outstanding balance of the facility.
Do banks need personal guarantee for recovery loan scheme?
The maximum loan size remains at up to £2m. However, recognizing that businesses and the UK more generally are now in a better position than they were during the pandemic, lenders may now require a personal guarantee from the borrower, in line with standard commercial practice.
The principle behind the extended recovery loan scheme remains unchanged: government will underwrite 70% of lender liabilities, at the individual borrower level, in return for a lender fee. Lenders must ensure that the benefits of the government guarantee are passed through to businesses.
When can businesses apply for recovery loan?
Businesses will be able to apply for the latest iteration of the loan scheme in August, when the government will release further details.
The extension provides further government support for businesses grappling with cost pressures and adds to measures already announced by the Chancellor, such as increasing the employment allowance, reducing fuel duty by five pence, and introducing a 50% business rates relief for eligible high street businesses.
Business secretary Kwasi Kwarteng said: ‘Small businesses are the lifeblood of the British economy, which is why we are determined to support our traders and entrepreneurs in dealing with worldwide inflationary pressures.
‘The extension of the recovery loan scheme will help ensure we continue to provide much-needed finance to thousands of small businesses across the country, while stimulating local communities, creating jobs and driving economic growth in the UK.’
Examples of businesses which have benefited from the scheme include Leeds-based firm Wildfire Marketing, which used the loan to take on new employees to help the business grow, and White Light Ltd, a lighting firm which required finance to purchase new equipment for the latest West End shows.
Despite the loan extension, some had hoped that the government would launch an alternative scheme.
Gregory Taylor, head of banking and finance at MHA, said the extension does not go far enough in providing financial support for SMEs.
‘What we needed was a new scheme designed to match the issues which businesses will face in potential recession and a once in a generation spike in inflation,’ said Taylor.
‘Although we are yet to see all the small print the signs are not encouraging. Chancellor of the Exchequer, Nadhim Zahawi has said that under the extended scheme lenders may now require a personal guarantee from the borrower, in line with standard commercial practice. This puts the risk back on hard-pressed business owners and de-risks the government’s own 70% guarantee.
‘As it is, although renewing the RLS may be better than nothing the Chancellor has missed a big opportunity to throw SMEs a lifeline today.’
Chris Wilford, CBI director of financial services policy, said: ‘Amidst challenging economic headwinds and continued cost pressures, this remains a difficult time for business.
‘With cashflow difficulties at the forefront of the minds of many business owners, continued access to government-backed loans will bring great comfort.
‘This next phase of the recovery loan scheme will provide a critical lifeline for firms. The CBI will also continue to work with government and lenders on ensuring businesses have access to the finance they need to go for growth.’
Shevaun Haviland, director general of the British Chambers of Commerce, said:
‘The two-year extension to the recovery loan scheme will be a lifeline for many businesses facing a rising tide of costs. It is now essential that businesses in need of this extra support can access the scheme as quickly as possible.’
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