In the Budget announcement on 3 March 2021, the Chancellor of the Exchequer, Rishi Sunak, announced details of the ‘Recovery Loan Scheme’, which is set to launch on 6 April 2021.
Backed by the government, the new loan scheme aims to support UK businesses in their recovery from the economic fallout during the COVID-19 pandemic. Announced as a replacement to the existing COVID-19 support measures, which are due to close to new applications on 31 March 2021, the Recovery Loan Scheme will allow businesses of any size to access loans and other types of finance of up to £10 million per business.
Subject to eligibility requirements, a variety of finance products will be available to businesses, including:
- Term loans and overdrafts, which will be available between £25,001 and £10 million per business
- Invoice finance and asset finance, which will be available between £1,000 and £10 million per business
Term and asset finance facilities will be available for a term of six years, whereas overdrafts and invoice finance facilities will be available for a term of three years.
Eligibility for the Scheme
The Recovery Loan Scheme will be available to all UK businesses, regardless of their turnover. However, access to finance is subject to certain eligibility requirements. According to the latest guidance on the government’s website, in order to be eligible under the scheme, your business:
- Must be trading in the UK
- Must be viable (or would be viable were it not for the COVID-19 pandemic)
- Must have been impacted by the COVID-19 pandemic
- Must not be in collective insolvency proceedings
Further details on eligibility and how to apply are expected to be published by the government once the scheme launches on 6 April 2021.
The Recovery Loan Scheme will not be available to the following types of business: banks, building societies, insurers and reinsurers (except for insurance brokers), public-sector bodies, and state-funded primary and secondary schools.
Advantages of the Scheme
The scheme provides a number of advantages to businesses that require flexible access to finance as COVID-19 restrictions are lifted in the coming weeks and months. Notably, funds received under the Recovery Loan Scheme can be applied for any legitimate business purpose from growth and investment to cash flow management.
No personal guarantees will be taken by lenders on facilities up to £250,000, and a borrower’s principal private residence cannot be taken as security. In addition, even if your business has previously received support under existing loan schemes, you will still be eligible for facilities under the Recovery Loan Scheme.
As is the case with existing loan schemes, the government will guarantee 80% of the finance to the lender under the Recovery Loan Scheme.
Interest Payments and Costs
Under existing support measures, borrowers can benefit from arrangements such as the ‘business interruption payments’, in which the government pays interest and fees for the first 12 months of a government backed facility. This benefit will not apply to the Recovery Loan Scheme, under which borrowers will be directly liable for interest payments and costs from the outset.
How Will Lenders Price Facilities Under the New Scheme?
The Recovery Loan Scheme will operate through a panel of accredited lenders. It is unclear at this stage whether these lenders will be required to offer finance to borrowers at government approved pricing levels in order to benefit from the UK government guarantee of loans under the scheme. Nevertheless, pricing will no doubt be an area of concern for the government if the Recovery Loan Scheme is to be commercially viable for recovering businesses.
The Recovery Loan Scheme is due to become available on 6 April 2021 and will be open for new applications until 31 December 2021 (albeit these dates are subject to review).
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