Recovery Loan Scheme opens books but on commercial terms, says accountants Kreston Reeves

The Government's Recovery Loan Scheme has this week (6 April) opened its books to businesses looking for funds to support post-Covid growth.

But unlike its predecessors, the Coronavirus Business Interruption Loan Scheme and the Bounce Back Loan Scheme, the Recovery Loan Scheme is offered on standard banking commercial terms. This means, says accountants, business and financial advisers Kreston Reeves, that businesses will be required to pay arrangement fees and repay loans with interest from the outset

John Walsham, business development and funding consultant at Kreston Reeves and former commercial banker explains.

"Businesses will be able to borrow between £25,000 and £10m for term loans and overdrafts, or between £1,000 and £10m against invoice finance and asset finance. Depending on what lending product you use terms can be up to six years.

"The Recovery Loan Scheme is open to any UK business including those that have borrowed under earlier schemes, that is viable or would have been viable if not for the coronavirus pandemic and is not in collective insolvency proceedings. Businesses will need to demonstrate that they have been impacted by the global pandemic to qualify.

"Money borrowed can be used for any legitimate business purpose including managing cash flow, investment and supporting growth.

"Questions had been raised over whether directors would be required to provide personal guarantees, and whilst guidance was published late in the day, it has now been confirmed that they will not be required for borrowing below £250,000.

"It is expected that lenders will charge a premium to their usual rates recognising that in many instances they will be relying solely on the government guarantee as their security.

"Businesses should note, however, that the 80% government guarantee does not mean they escape liability for the loan. If a business defaults and a lender cannot recover the money borrowed, it can then turn to the government which will then refund the lender up to 80% of the loan value."

Businesses should always seek advice when exploring borrowing or raising finance and a list of accredited lenders is expected to be announced by the launch date.



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