Budget’s new business recovery scheme offers larger loans
© Adobe Stock Businesses can borrow up to £10m under the Recovery Loan Scheme announced in the Budget.
This will be available through a list of lenders yet to be announced, providing support as businesses recover and grow following the disruption of the pandemic, says the government.
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The government guarantees 80% of the finance to the lender, but business assets will be called upon first to make good any default, although a borrower’s principal private residence cannot be taken as security.
The scheme launches on 6 April and is open until 31 December, subject to review. Interest rates are expected to be capped at 15%.
The types of finance available are:
- Term loans and overdrafts of £25,001-£10m/business
- Invoice finance and asset finance of £1,000-£10m/business
- Finance terms of up to six years for term loans and asset finance.
For overdrafts and invoice finance facilities, terms will be up to three years.
To be eligible, businesses must be trading in the UK and be able to show they:
- Are viable or would be viable were it not for the pandemic
- Have been affected by the coronavirus pandemic
- Are not subject to collective insolvency proceedings.
Businesses that have received support under the existing Covid-19 guaranteed loan schemes, CBILS and the BBLS, will be eligible to access finance under the new scheme if they meet all other eligibility criteria.
First Covid-19 loan schemes close in days
Applications for the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS) close on 31 March.
These loans were first issued in April and May last year. Most included 12 months of zero interest and no repayments, so paybacks will begin in April this year.
CBILS loans are available for up to £5m as term loans, overdrafts, invoice finance and asset finance, with fixed or variable rates set by the lender.
They are assessed for affordability and, in many cases, those issued last year assumed trading would return to 2019 levels by the time the repayments started.
Any default is recoverable against business assets first and where recovered against personal assets, the amount cannot exceed 20% of the loan. After this, the government guarantees 80% of the loan.
BBLS loans range from £2,000, with the maximum loan set at 25% of turnover, or £50,000, whichever is lower. These can be for up to 10 years, charged at 2.5% interest, and were issued with no viability checks. However, business assets are at risk if the interest and repayments cannot be met.
If cash is available and the loan is no longer needed, there are no charges for early repayment and doing so would save on interest costs, say advisers.