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What is the new Covid-19 Recovery Loan Scheme?

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Understanding the Recovery Loan Scheme, the Bounce Back Loan Scheme replacement

The original coronavirus loan schemes that provided invaluable emergency funding from the beginning of the pandemic are ending on 31st March 2021. The government is shifting its focus to business recovery and growth, and a new scheme is being launched on 6th April 2021.

The new Covid-19 Recovery Loan Scheme provides businesses of all sizes with vital financing to grow and develop in a post-pandemic world. It’s designed to be flexible and easy to access, with a range of funding options available.

So how does the Recovery Loan Scheme work, and what are the eligibility requirements?

How do Recovery Loans work?

The government has provided an 80% guarantee for all loans under this scheme. This is intended to encourage finance providers to lend to businesses after the lockdown has lifted, but it remains the borrower’s responsibility to repay the money in the event of default.

Loan terms range from three years to six years depending on the type of funding used. You have a choice of:

  • 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

In a similar way to Bounce Back Loans and Coronavirus Business Interruption Loans, there will be a choice of accredited lenders involved in the Recovery Loan Scheme. If you obtain a term loan or asset finance, it’ll be on terms of up to six years. For overdrafts and invoice finance, the facility will run for up to three years.

Additionally, lenders won’t be able to demand a personal guarantee from you as a director for loans under £250,000. For any lending over this amount, your Principal Private Residence cannot be used as security.

Are you eligible for the Recovery Loan Scheme?

The eligibility requirements for Recovery Loans include:

  • Trading in the UK
  • Being adversely affected by coronavirus
  • Being otherwise viable for the future
  • Not being in any type of insolvency procedure

The Recovery Loan Scheme is available to businesses of any size that meet these criteria. It can provide the type of funding needed for businesses in all industries to evolve and prosper post-coronavirus.

You can apply for a Recovery Loan if you’ve already received other forms of government coronavirus funding. There’s no interest-free period with the Recovery Loans as there was with the other coronavirus loan schemes, however, and you’ll be required to pay associated fees.

The new scheme is set to end on 31st December 2021, so how do you apply for this type of finance?

How to apply for a Recovery Loan

You can apply to your chosen lender directly for a Recovery Loan, and a list of lenders will be available on the British Business Bank website. Financiers will carry out credit checks and fraud checks, and processes may vary between different lenders.

It’s expected that lenders will take a longer-term view of business performance and suitability for this scheme – in other words, assess an application on the basis that the pandemic hadn’t happened.

If an application is sanctioned the funding can be used for any legitimate business purpose, such as growth and development, or supporting cash flow whilst the business gets back on its feet.

If you would like more information on the new Covid-19 Recovery Loan Scheme, please get in touch with our partner-led team at UK Liquidators. We operate an extensive network of offices around the country, and can offer you a free, same-day consultation.

Jonathan Munnery
Partner

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