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Should I take out a Recovery Loan?

October 27 2021 by Gayatri Wood

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. 

Next steps

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.

Find out more

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