After a year of the most challenging business climate in living memory, company directors are understandably exploring every financial support option available. However, is the recovery loan suitable for your business?
What is the Recovery Loan Scheme?
Launched on 6th April 2021, the Recovery Loan Scheme replaces the original coronavirus loans, which provided invaluable emergency funding from the start of the pandemic. The government has now shifted focus to provide financial support that enables business recovery and growth as we take the tentative steps out of lockdown.
The government will provide an 80% guarantee for all loans, with no personal guarantees needed for borrowing up to £250,000. Interest rates are capped at 14.99%, with loan terms ranging from three to six years, depending on the type of funding used. These include:
- Term loans and overdrafts of between £25,001 and £10 million per business
- Invoice finance and asset finance of between £1,000 and £10 million per business.
Who is eligible?
The loan is designed to be accessible for businesses across all industries. It is open to all companies trading in the UK, except for public sector bodies, state-funded primary and secondary schools, banks, building societies, insurers and reinsurers.
Eligible businesses must have been adversely affected by Covid-19 in some way and show they would be viable were it not for the pandemic. Additionally, while it is expected that a business may have dealt with some form of financial distress, it must not be in collective insolvency proceedings at the time of application.
What if you have already had a CBILS or Bounce Back Loan?
Even if you have previously taken out a CLBILS, CBILS or Bounce Back Loan, you are still eligible for the Recovery Loan Scheme if your business requires additional funding. However, it is worth noting that there is no interest-free period with this loan like there was with the other coronavirus schemes.
Of course, a major appeal of a Recovery Loan is that a personal guarantee is not required for loans taken up to £250,000. So, if your business is unable to repay the loan, you, as the business owner, will not be personally liable for the money owed. That being said, the Recovery Loan is not risk-free, and if you already have any CLBILS, CBILS or Bounce Back Loans, you must be sure that your business is in a position to make all of the necessary repayments.
How you can apply.
You can find a lender accredited to offer Recovery Loans from the list on the British Business Bank website and apply to them directly. Not every accredited lender can provide every type of finance available under the scheme, with the amount of finance offered varying between lenders too.
As with any loan application, lenders will conduct credit, fraud, Anti-Money Laundering (AML) and Know Your Customer (KYC) checks for all applicants. Given the eligibility factors of the scheme, lenders are expected to take a longer-term view of your business’ performance and suitability, assessing the application on the basis that the pandemic had not happened to ensure viability.
You will need to provide evidence that proves you can afford to repay the funds, including management accounts, historic accounts, details of assets and your business plan.
Where can you find additional support?
The Recovery Loan Scheme goes some way in helping businesses across our region to overcome the effects of the pandemic and stay afloat. Directors of companies in distress that are unable or not in a position to take advantage of the scheme need to tackle any fundamental cash flow problems in their business now before it is too late.
If you are running a business that is suffering from cash flow problems or you are unsure about its future viability, it is crucial that you reach out for help and support. In April, Begbies Traynor launched a confidential hotline for company directors needing help to resolve the challenges they face in repaying CLBILS, CBILS, Bounce Back Loans, deferred tax bills, or impatient creditors. In short, do not suffer in silence – there is support out there to help you navigate this challenging time and ensure your business not only survives but prospers in 2021 and beyond.
Begbies Traynor’s confidential hotline is open to directors of businesses of all sizes across all sectors. The number is 0800 056 1059.