Throughout the last year the government has set out a range of measures to help businesses struggling due to the coronavirus pandemic, including the Bounce Back Loan Scheme and Coronavirus Business Interruption Loan Scheme.
The schemes are now closed to new applications, however the government has recently announced it will provide more support for businesses continuing to struggle with Covid related debts with its Recovery Loan Scheme.
In this guide, Clarke Bell looks at what the Recovery Loan Scheme is and how it can help businesses in 2021.
What is the Recovery Loan Scheme?
The Recover Loan Scheme has been introduced to help businesses recover whilst the lockdown eases and the country and economy begins to open up.
Launched on the 6th April 2021, the Recovery Loan Scheme offers financial support to businesses across the UK.
Who can apply for the Recovery Loan Scheme?
Any business that has been affected by the pandemic can apply for the Recovery Loan Scheme.
The finance provided can be used for any legitimate business purpose, which includes managing cashflow, investment and growth. You must, however, be able to afford to take out additional debt finance for these reasons.
The Recovery Loan Scheme will be available to you if you have already borrowed from any other of the government’s coronavirus loan schemes, including:
- The Bounce Back Loan Scheme
- The Coronavirus Business Interruption Loan Scheme
- The Coronavirus Large Business Interruption Loan Scheme
Although you can still take advantage of the Recovery Loan Scheme if you have borrowed under one of the existing schemes, the amount you may borrow through the Recovery Loan Scheme might be limited depending on how much you have previously borrowed.
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How does the Recovery Loan Scheme work?
The Recovery Loan Scheme is initially available through a number of lenders who are accredited by the British Business Bank.
If you are considering the Recovery Loan Scheme, you should approach your own financial provider first. If you’re unable to access the finances needed through this provider, you should then approach other lenders.
How can the Recovery Loan Scheme help businesses?
Some key features that have been designed to help businesses include:
- Up to £10 million facility per business: the maximum amount of a facility provided through the Recovery Loan Scheme is £10 million for each business. Facility sizes start at £1,000 for asset and invoice finance, and £25,001 for term loans and overdrafts.
- No turnover limits for businesses accessing the scheme
- Personal guarantees: personal guarantees aren’t permitted for facilities of £250,000 or less. Above £250,000, the maximum amount that can be covered under the scheme is limited to 20% of the outstanding balance of the facility.
- Multiple schemes: businesses that have taken advantage of other government led schemes can still access the Recovery Loan Scheme.
- Guarantee to the lender: the Recovery Loan Scheme gives the lender a government-backed guarantee against the outstanding balance of the facility. The borrower is 100% liable for the debt.
- Interest rates: businesses must pay the interests costs and any fees linked to the facility from the outset. The annual rate of interest and other fees can’t reach more than 14.99%.
Who can apply?
Any business of any size can apply for the Business Recovery Scheme as long as it meets the following criteria:
- It is trading in the UK
- It can prove it has been badly impacted by the pandemic
- It would be viable if not for the pandemic
- It is not currently undergoing an insolvency procedure
- It has received previous coronavirus loan schemes
What other options do businesses have?
If your business is struggling financially and is not eligible for the Recovery Loan Scheme, you will need to look at what options are there for you.
It might be the case that your business can be rescued and restore profitability, or the reality might be that your business is no longer viable and therefore closing the company might be the best option.
If you are looking for options for business rescue, you might consider applying for a Company Voluntary Arrangement (CVA.)
A Company Voluntary Arrangement lets an insolvent company draw up an agreement with creditors in order to repay its debts over a fixed time period.
Whilst a company is under a CVA, the director remains in control and the company will continue to operate and trade. This is usually a good option for businesses looking for rescue to help turn around the insolvent company.
A company is eligible for a CVA if:
- They are insolvent
- The directors and Insolvency Practitioner believe the business has real chances of recovery, can become sustainable once more and rebuild profitability
- The company can illustrate projected cash flow forecasts that prove they will have enough funds to cover the repayment terms outlined.
However, if your company doesn’t have a sustainable future, the best option will be to liquidate and close the company through Creditors’ Voluntary Liquidation (CVL).
Creditors’ Voluntary Liquidation is a process where the director decides to close the company because it has debts that it cannot pay.
As the director, you can initiate a CVL if your company is insolvent and if the shareholders agree and pass a winding-up resolution.
Although this will lead to your company being liquidated due to debts, a CVL is one of the best courses of action to take as it acknowledges your duty as a director to your creditors. What’s more, you will still be able to open a new company in the future.
Considering a CVA or a CVL? Clarke Bell can help you
If your business is struggling with cashflow problems and / or business debts, it can be difficult to know what steps to take next, whether to try to rescue the business or to close it.
If you are unsure of what the right course of action is for you, your company and your creditors, Clarke Bell are here to help.
Our advice is free and confidential, and we offer affordable fees. So, if your company is struggling to pay its debts, get in touch today and see how we can help.
