Live: Financing the recovery

If it were not for debt financing, whether it be at the level of Government borrowing or simply businesses accessing loans from their respective lenders, it is difficult to comprehend just how perilous the UK’s economic situation would now be. The widespread availability of credit has helped businesses manage their cashflow and keep people in jobs despite not being able to trade in many cases. As the economy begins to reopen, the Government has launched the Recovery Loan Scheme. Here, Richard Dawson explains what businesses need to know about it

A new Government-backed loan scheme has been launched to support businesses of all sizes looking to reopen and recover after a full year of coronavirus restrictions.

Introduced earlier this week (April 6), the Recovery Loan Scheme (RLS) follows previous rounds of financial support such as the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS), both of which came to an end on March 31.

The RLS is essentially a merger of these previous schemes in the sense that businesses of any size can access loans from as low as £25,000 up to a maximum of £10 million.

Previously, the limit for the BBLS was £50,000, whereas for the CBILS it was £5 million.

The RLS will run until December 31, 2021 and is available to support any business affected by the COVID-19 pandemic and which can afford to take out additional debt finance.

It will work in much the same way as its predecessors, with the Government providing an 80 per cent guarantee on all loans.

Interest rates have been capped at 14.99 per cent and are expected to be much lower in the vast majority of cases given the Government guarantee.

So far, 26 lenders have been accredited by the British Business Bank to provide finance through the scheme, with the likes of Barclays, Lloyds Bank, NatWest and RBS able to offer it to their customers as of this week.

With non-essential retail and outdoor hospitality opening from next week (April 12), businesses can use RLS loans to manage cashflow, purchase new equipment or hire new staff.

Lending can be arranged as a standard term loan with a repayment period from three months up to six years, and also through an overdraft extension, invoice or asset finance facility.

For overdrafts and invoice financing, the loan must be repaid within three years.

RLS loans of up to £250,000 do not require a personal guarantee, which is when a company director or shareholder can be made personally liable in the case of non-repayment.

Personal guarantees for loans over £250,000 are capped at a maximum of 20 per cent of the outstanding balance after the proceeds of business assets have been applied.

The RLS is open to businesses that have accessed previous emergency funding schemes such as the CBILS or the BBLS, but the amount borrowed will be taken into consideration when considering lending affordability for the RLS.

Chancellor Rishi Sunak says the RLS will ensure businesses continue to have access to finance as the UK moves out of the coronavirus crisis.

“We have stopped at nothing to protect jobs and livelihoods throughout the pandemic and as the situation has evolved, we have ensured that our support continues to meet businesses’ needs,” he said.

So far, the Government has guaranteed £75 billion of finance for an estimated 1.6 million businesses.

The RLS will add substantially to that total and follows recent announcements that the Coronavirus Job Retention Scheme (CJRS) is being extended until September 30 and that another round of grant funding is being rolled out to the tune of £18,000 per eligible business.

The Office for Budget Responsibility (OBR) has previously forecast that the UK budget deficit for the financial year 2020/21 will hit a peacetime record of £355 billion, equivalent to 17 per cent of GDP.

Rain Newton-Smith, CBI chief economist, said: “The coronavirus loan schemes have provided a critical lifeline to businesses, and so its successor – the new Recovery Loan scheme – comes as a huge relief to firms.

“These loans can be taken alongside existing COVID loans to help firms refinance, restructure and go for growth.

“It is vital support remains as restrictions relax and demand returns to normal, allowing businesses to recover, save jobs, and support for reopening.”

David Postings, chief executive of the trade association UK Finance, added: “The banking and finance industry remains committed to supporting businesses of all sizes through the next phase of the pandemic response.

“As focus turns to economic recovery, we know that many firms are still facing uncertainty.

“The new Recovery Loan Scheme, alongside other commercial financial support, will help firms rebuild and invest for future growth.”