Recovery Loan Scheme clock is ticking for SMEs

April 6, 2022

Rising energy prices, broader inflation worries and an underwhelming Spring Statement from the Chancellor may have overshadowed a useful avenue for help that will be closed to SMEs in less than three months.

The Recovery Loan Scheme (RLS), which ends on 30 June, may yet present a critical lifeline for smaller businesses facing trading problems, needing a working capital injection or, if they’re feeling more optimistic, funding investment.

Firms can still borrow up to the now lower cap of £2m, of which 70% is underwritten by the government and is available to those with a turnover below £45m that have been affected by Covid. There are no conditions on uses for the funding – typically cashflow, investment and growth – but affordability for the additional debt finance must be satisfied.

The RLS is accessible through lenders accredited by the British Business Bank and applications are presently taking around six weeks, hence the urgency.

Interest rates are capped at 14.99% but, depending on the loan term, lender’s view of affordability and some negotiation, should fall within the 6-9% range. In any event, success in securing RLS funding is likely to be greater than applying for a more traditional bank loan.

RLS applicants looking for investment funding rather than breathing space might also take advantage of the Super Capital Allowances scheme, which allows 130% capital allowances on qualifying plant and machinery spending and runs until 31 March 2023.

Looking further ahead, the UK government is sounding out banks to provide a permanent replacement for the various Covid-related programmes of the last two years. A new loan guarantee scheme is expected to focus on SMEs that would otherwise struggle to find financing at affordable terms from their lending banks, rather than aiming to help recovery or survival. The present discussion is thought to be chiefly around the appropriate level for the government guarantee, the inclusion of personal guarantees from directors and other realistic conditions.

Buchler Phillips is the UK’s leading independent corporate recovery, restructuring and turnaround firm.

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