Recovery Loan Scheme extended for 2 years

The Recovery Loan Scheme, which supports small businesses and sole traders still struggling with the effects of COVID-19, has been extended for two years. With the effects of the coronavirus pandemic and the cost-of-living crisis still affecting many businesses, the extension is expected to help more going forward.

Supporting businesses

The government introduced the Recovery Loan Scheme in April 2021. The scheme offered businesses access to loans and other financial support via accredited lenders to help as they emerge from the pandemic. The scheme offers up to £10 million per business, though how much they are offered is at the lenders’ discretion. So far, the scheme has supported almost 19,000 businesses, lending an average of £202,000. The borrowing businesses are 100% liable for the repayments, while the government guarantees 70% of the finance to the lender.

Recovery Loan Scheme extended

From 1st January 2022, the government updated the scheme’s terms, reducing the guaranteed amount from 80% to 70% for loans taken out after that date.

Originally extended until 30th June 2022, on 20th July, the government announced it would extend the Recovery Loan Scheme for another two years, with the scheme reopening to applications on 1st August 2022 and running to 30th June 2024. The extension comes as businesses continue feeling pressure following the coronavirus pandemic, rising prices, and the cost-of-living crisis.

“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.”

Business Secretary Kwasi Kwarteng.

Chancellor of the Exchequer, Nadhim Zahawi, reiterated the principles behind the scheme while outlining some of the terms now that most coronavirus restrictions are relaxed:

“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.

The maximum loan size remains at up to £2m. However, recognising 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.”

Chancellor of the Exchequer, Nadhim Zahawi.

There has been support for this extension from outside the government, with the Director General of the British Chamber of Commerce citing the continued disruption meaning businesses still need support.

“After two years of pandemic disruption and with a faltering global economy, the BCC has been calling for this continued financial support for firms. The two-year extension to the Recovery Loan Scheme will be a lifeline for many businesses facing a rising tide of costs.”

Shevaun Haviland, Director General of the British Chambers of Commerce.

Further help for business debt

While the Recovery Loan Scheme may help small businesses repay their debts, if your company debts are of such a level that the company becomes insolvent (unable to repay its liabilities when they fall due), you could require more tailored, formal assistance.

If this is the case, speak to us. Our initial advice team can offer free, impartial advice with no obligation. We tailor our advice to you and your company’s circumstances, helping you decide the best way forward.

This could involve putting your company into a Company Voluntary Arrangement (CVA), wherein your company repays an affordable portion of its debt every month. Sole traders struggling with business debts can explore an Individual Voluntary Arrangement (IVA), allowing them to repay their business and personal debts.

If more substantial action is required to save the company, administration could be a suitable solution. During administration, a licensed insolvency practitioner implements the changes necessary to make the company profitable again. If, however, the company’s debts are of such a level that closure would be the only feasible option, then you can put the company into a Creditors Voluntary Liquidation (CVL). This process closes the company in an orderly manner and draws a line under the debts.

Summary

With small businesses still feeling the lasting effects of the coronavirus pandemic and the pressures of the cost-of-living crisis, the government has extended the Recovery Loan Scheme for another two years, with a new application window from 1st August 2022 until 30th June 2024. The borrowing businesses are 100% liable for the loans’ repayments, and the government will guarantee 70% to the lender.

While the Repayment Loan Scheme can help companies struggling to repay their debts, if those debts have pushed the company into insolvency, directors can explore a number of recovery or closure options to draw a line under them.