The recovery loan scheme is an initiative by the government of the UK. It was introduced to cope with the effects of the COVID-19 pandemic on businesses. As the commercial entities are recovering, this scheme was necessary to work on loan recovery.
This scheme has replaced previous schemes like the Coronavirus Business Interruption Loan Scheme and the Bounce Back Loans Scheme. However, the scheme is not as versatile as the loan options offered by new-age direct lenders. There, you can also get loans for debt consolidation for bad credit scores. Here, you only borrow money to support your business with no specific use of the obtained funds. Hence, prepare your business well as the terms and conditions of the scheme are decided.
The scheme aims to offer the following facilities. These are –
- Help businesses access finance
- Grow their operations
- Recover from pandemic-related losses
- Invest in new opportunities
How did the new scheme take shape?
The scheme was started in 2021, and it took its actual shape in different phases. Let’s read about its progress below.
Phase 1 (April 2021 – June 2022)
- Loans up to £10,000
- Open to all businesses affected by the Covid-19 pandemic
- Government guarantee of 80%
Phase 2 (August 2022 – June 2024)
- 70% government guarantee
- Loans capped at £2 million
- Only for small businesses
Phase 3 (July 2024 – June 2026) – Current phase
- Aims to promote sustainable growth
- Extended government support for ongoing recovery
Who can apply for this scheme?
Businesses that can fulfil the following eligibility criteria can apply for the scheme. If you are among those businesses that can stand strong on the conditions below, it is easier to get the financial support.
- UK-based businesses that are actively trading
- There are no collective insolvency proceedings.
- Viable without the scheme.
- Not subject to sanctions as per the UK Financial Sanctions regime.
- Annual turnover not more than £45 million.
Excluded sectors you should know are –
- Public sector bodies
- Banks and building societies
- State-funded primary and secondary schools
What finance types are available through the scheme?
- Term loans
- Asset finance
- Invoice finance
- Overdraft
Loan amounts:
- The minimum loan amount is £1000
- The maximum amount limit is £2 million per business
Loan tenure is:
- Term loans & asset finance is a maximum of 6 years
- Invoice finance & overdrafts are for a maximum of 3 years.
Interest rates and fees
- Lender fees and interest rates are commercially determined, however
- The loan must be fair and affordable
- No government-set cap that was not applicable in earlier schemes
Securities and Guarantees
- Government guarantee: up to 70% to the lender and not to the borrower
- Personal guarantees may be needed. However, private residences cannot be offered as security.
What is the application process?
The application process for the scheme has been decided. Know about it beforehand, as you can then prepare for it, which improves approval chances considerably.
Choose a registered lender authorised to lend under the scheme. A list of authorised lenders is available in the British Business Bank’s List.
- Apply directly through the lender without any broker interference.
- Prepare documents as per the requirement, such as financial forecasts, business plan, accounts, etc.
- Credit checks are conducted by the lender.
- Approval and disbursement take a few days to a few weeks.
Benefits of the Recovery Loan Scheme
The government scheme was started with the sole aim of supporting businesses and providing them with the necessary funds. This is why it has many benefits you can count on, especially if you are one of the beneficiaries.
- Access to the required amount of capital.
- Flexible usage (recovery, growth, working capital)
- Government-backed guarantee improves the confidence of the lender
- Available to varied sectors of businesses.
What are the considerations before you apply for the scheme?
The scheme has its terms and conditions. Hence, before you apply, it is necessary to read some of its considerations.
- You, as a borrower, are responsible for the timely repayment of the loan.
- Proper affordability assessment through credit checks is applicable.
- The rate of interest can be higher as compared to the schemes before COVID-19
- A limited government guarantee of up to 70% to 80% is available
Follow the considerations above perfectly, and you will be able to borrow money conveniently. Take the help of a financial advisor who specializes in public funding schemes.
Tips to apply and get smooth approval
From qualifying as a beneficiary to getting approval for the loan, the scheme rules are quite specific. Hence, you need to know some suggestions that can help get a smooth approval.
- Prepare a proper business plan
- Prepare a detailed cash flow forecast
- Create a clear explanation about how the loan is going to help you.
- Demonstrate long-term viability
- Update your business financial records up to the current date
The stronger your credit purchase power, the easier the approval will be. Keep all business financial documents in the right order. The government scheme process includes paperwork, which can be tiring. But if you want to get funds, some hard work is required.
Alternatives to the Recovery Loan Scheme
Due to multiple terms and conditions, it is difficult to qualify for the scheme. Hence, you should better know about several alternatives you can consider in case the scheme support is not available for your business.
- Direct lending
- Start-up loans
- Peer-to-peer lending
- Grants (local and national)
- Invoice financing
From the above given options, the direct lending is the most promising one. It offers funds even to poor-credit businesses. You can apply for poor credit loans with no guarantor options for businesses. Instant approval decision, bigger loan amount limits, and customized affordable deals are primary features.
This is why most business owners prefer to borrow from alternative online lenders. Hence, you will have a wider range of opportunities to grow. Flexible repayments make the borrowing even more predictable. With a fully digitized process, you do not need to get stuck in paperwork like government schemes.
Conclusion
As you can read above, the government scheme has its own rules. However, they are not stringent but quite specific. You can also consider alternative lending methods. The scheme does provide financial support, but the loan amount is limited. A business needs money constantly, and the requirement can be for a larger loan amount.
Most important is to work on the repayment ability of your business. Financial stability, timely payment of bills, and debts bring approval conveniently. Whether you apply for the government-backed support or alternative lending companies, your creditworthiness is a decisive factor.