What is the Recovery Loan Scheme?

Definition of Recovery Loan Scheme

The Recovery Loan Scheme is a temporary initiative designed to help businesses affected by the coronavirus (Covid-19) pandemic secure financial support from banks and other lenders.

At the Autumn Budget in October 2021, the Chancellor announced that the government would extend the Recovery Loan Scheme until 30th June 2022, with some changes to the scheme coming into effect on 1st January 2022.

Using the Recovery Loan Scheme (before 1st January 2022)

Until 1st January 2022, businesses accessing the Recovery Loan Scheme can apply for:

  • a loan or overdraft of between £25,001 and £10 million per business
  • invoice finance or asset finance of between £1,000 and £10 million per business.

The amount offered to each business under the scheme is at the participating lender’s discretion. Although the government will guarantee the lender up to 80% of loans and finance provided, up to a maximum of £10 million per business, the business that applies for the loan will be 100% liable for the debt.

The maximum length of the loan can be:

  • up to three years for overdrafts and invoice finance
  • up to six years for loans and asset finance

Most businesses that currently trade in the UK can apply for a loan under the Recovery Loan Scheme, including those that have received support through other Covid-19 initiatives, such as the Bounce Back Loan Scheme. HMRC states that business owners who apply for the Recovery Loan scheme need to show that the business has been adversely impacted by the pandemic and that it “would be viable if not for the coronavirus pandemic”.

Changes to the scheme from 1st January 2022

From 1st January 2022, the following changes to the Recovery Loan Scheme will come into effect:

  • The scheme will only be open to small and medium-sized businesses.
  • The maximum amount of finance available will be £2 million per business.
  • The guarantee coverage that the government will provide to lenders will be reduced to 70%.

These changes will apply to all finance applications made on or after 1st January 2022.

Further information about the Recovery Loan Scheme is available on the government’s website.

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