Another two years have been added to the Recovery Loan Scheme, which provides a government guarantee for small company loans.
The government will cover 70% of the lender’s potential losses in the case of failure.
Up to £2 million is still the maximum borrowing amount.
However, borrowers may now be required to provide a personal guarantee to lenders. You risk losing your house if you don’t make your payments on time.
In April 2021, the Recovery Loan Scheme was first introduced to aid companies in their recovery from the Covid-19 epidemic. It has given an average of £202,000 in help to over 19,000 firms.
The British economy depends heavily on small firms. Therefore business secretary Kwasi Kwarteng declared: “We are committed to helping our merchants and entrepreneurs in coping with the strains of global inflation.”
The Recovery Loan Scheme’s extension will assist guarantee that we continue to provide desperately needed financing to thousands of small companies throughout the nation while also boosting local economies, generating employment, and promoting community development in the UK.
Gregory Taylor, the MHA’s director of banking and finance, called the new Recovery Loan Scheme a “failure” and said that the expansion did not go far enough in assisting SMEs. Additionally, by demanding a personal guarantee from the borrower, the government’s own 70% guarantee is de-risked, and the risk is returned to the company owners.
Due to the prior RLS’s burdensome conditions, David Fleming, UK head of restructuring at insolvency practitioner Kroll, noted its poor uptake.
Fleming said that given the attention placed on the amount owing in Covid loan repayments, it could be harder for banks to provide further loans to consumers who fall outside standard banking guidelines.
He cautioned that the new Recovery Loan Scheme might not be well received due to the higher interest rates and need for personal guarantees.
The functioning of the new Recovery Loan Scheme
Each firm may get up to £2 million. The minimum funding for asset and invoice financing is $1,000, while for term loans and overdrafts, it is $25,001. The partnering lender will choose the total amount given at their discretion. Before approving your request for financing, they will do fraud and credit checks.
The government is insuring the lender’s investment to 70%, but the borrower will always be fully responsible for the loan. The total of the introductory, other, and annual interest rates cannot exceed 14.999%.
Who are the new Recovery Loan Scheme lenders?
The British Business Bank (BBB) has outlined the accredited lenders for the previous RLS listed below:
Revolving credit (overdrafts)
How do I apply?
You can apply directly through your lender. Check the links above for more details.
How long is the term?
The length depends on what kind of finance you’re applying for.
- Up to three years for overdrafts and invoice financing facilities
- Up to six years for loans and asset finance facilities