From 1 January 2022, the following changes will come into force:
The scheme will only be open to small and medium-sized enterprises
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 offers made from 1 January 2022.
What is a Recovery Loan?
The government has replaced the CBILS and Bounce Back loans, which closed on 31 March 2021, with a new scheme: Recovery Loans, which launched on 6th April 2021. The actual amount offered and the terms are at the discretion of participating lenders with the government guaranteeing 80% of the finance to the lender until 1 January 2022 and will reduce to 70% from then.
What you need to know:
Recovery Loans and overdrafts are available between £25,001 and £10 million per business until 1 January 2022 upon where it will drop to between £25,001 and £2 million per business
No personal guarantees on loans under £250k
You have to show that your business has been affected by COVID (this is a broad definition)
Recovery Loans are not available to businesses currently in liquidation
If you previously had a CBILS or Bounce Back loan, you can take out a Recovery Loan as well
Unlike the CBILS/Bounce Back loans, there is no interest-free period with the Recovery Loans
The maximum length of the facility depends on the type of finance you apply for and will be:
up to 3 years for overdrafts and invoice finance facilities
up to 6 years for loans and asset finance facilities
Taking out a recovery loan could impact a company owner’s ability to obtain a personal mortgage
How you might use a Recovery Loan
There are surprisingly few restrictions on what you can use a Recovery Loan for. You could use it to refinance CBILS/BBL loans to a lower interest rate. You can look at the post-pandemic opportunities for your business and fund them with cheap finance. As a growth opportunity, who knows when we’ll next see such cheap (relatively) unsecured finance.
What you need to think about
The main considerations when taking out a Recovery Loan are:
What can you afford to repay?
What does your future cash flow look like?
What opportunities could you unlock with this finance?
Importance of meaningful information at your fingertips
When taking out any finance and looking at the repayments, keep a close eye on your cash flow. Having visibility of up to date financial information is essential – make sure someone stays on top of the simple things such as bank reconciliations, sending invoices, automating expense entry, and updating forecasts.
The British Business Bank website has a full list of accredited Recovery Loan Scheme lenders. At Wow, we’re here to talk through your options and help with any applications if needed.