The Government's flagship business loan scheme that helped thousands of businesses cope during the Covid pandemic came to an end late last month (30 June).
The recovery loan scheme opened to applications on 6 April 2021 to help businesses cope with the large amount of trade lost to the pandemic and following social restrictions.
The scheme offered £1.06 billion to businesses with a turnover below £45 million through almost 6,200 facilities, with the Government promising lenders it would guarantee 80% of loans in the case of a default on payments.
Latest figures from the British Business Bank showing £822.8m had been claimed by October 2021.
Announced in Spring Budget 2021, the recovery loan scheme was just one of several business recovery programmes, including the coronavirus business interruption loan scheme (worth £26.29bn) and the bounce-back loan scheme (worth £47.36bn).
How did the recovery loan scheme work?
Through the recovery loan scheme, businesses were able to claim loans between £25,001 to £10m with a capped interest rate of 14.99% until 31 December 2021.
As part of Autumn Budget 2021, the Government decided to extend the scheme to the end of June 2022 as it became apparent that businesses were still struggling even after the lifting of all social distancing rules.
Businesses could only apply for a maximum loan offer of £2m from 1 January 2022 onwards, however, while the Government reduced its guarantees to lenders to 70%.
When the scheme first launched, the then Chancellor of the Exchequer, Rishi Sunak, said:
"As we safely reopen parts of our economy, our new Recovery Loan Scheme will ensure that businesses continue to have access to the finance they need as we move out of this crisis."
Industry reaction
Glenn Collins, interim head of the Association of Chartered Certified Accountants, believes the ending of the recovery loan scheme will lead to more uncertain times for small and medium enterprises.
He said:
"With no current replacement support plan in place, it will bring great uncertainty to already strained SMEs - leaving them in the lurch for the foreseeable future.
"Businesses have already experienced significant uncertainty during the pandemic and the government should have learnt from experience that avoidable gaps in support will only result in further economic pressures on the SME sector."
Kirsty McGregor, founder of The Corporate Finance Network, called for more support from the Government:
"The cost of living crisis coupled with existing pressures from the turbulence of the pandemic have put a further strain on already struggling small businesses in the UK.
"With the existing recovery loan scheme coming to an end, it's crucial the government confirms upcoming support for SMEs sooner rather than later."
A new recovery loan scheme?
Ministers are reportedly preparing to launch a replacement £3bn-a-year recovery loan scheme to help businesses recover from the pandemic, according to a report by the Financial Times.
The new government-backed loans will come with tighter requirements for borrowers. Under the scheme, businesses will be expected to offer personal guarantees for loans administered by banks, putting them on the hook for defaults on repayments.
Under the proposals, the government guarantee is likely to be set at 70 per cent of the value of the loan, according to insiders.
The policy will reportedly run for at least two years.
Craig Beaumont, chief of external affairs at the Federation of Small Businesses, said:
"If we head into recession, having a new loan scheme in place in the lending market could prove vital, especially if banks pull up the drawbridge on commercial lending."
Talk to us about your business.