The government is introducing a successor to the Recovery Loan Scheme (RLS), after figures revealed that it had offered more than £4.5bn of lending through more than 20,600 facilities for smaller businesses across the UK. 

Applications to the new business loan scheme will open on 1 August and run until 30 June 2024, a move warmly welcomed by ICAEW, which alongside other business groups had lobbied for a revised version of the RLS to be introduced to help businesses weather the current economic storm. 

While the RLS was extended by six months to the end of June this year, concerns about the impact of shutting off the emergency measures as businesses face a difficult economic environment prompted a rethink. 

In a statement, Business Secretary Kwasi Kwarteng said that under the latest extension the requirement for businesses to certify that they have been affected by the COVID-19 pandemic will no longer apply. To lend through the scheme, lenders will be required to certify that they would not have been able to offer a facility to the business on their normal commercial terms, or that they would have only been able to do so at a higher interest rate.

Catherine Lewis La Torre, CEO, British Business Bank, said the British Business Bank was committed to supporting smaller businesses in accessing the finance they need to grow sustainably. “Thousands of businesses in all sectors and from right across the UK have taken out loans under the Recovery Loan Scheme. This will better position them to confront both the challenges and opportunities that are ahead.”

The maximum amount of external finance available will be £2m per business in Great Britain, and £1m for businesses in scope of the Northern Ireland Protocol. Personal guarantees will be permitted, but not required, for facilities above £250,000, bringing the scheme in line with standard commercial practice in business lending. 

The government’s flagship business loan scheme opened to applications on 6 April 2021 to help businesses cope with the large amount of trade lost to the pandemic, with the government promising lenders it would guarantee 80% of loans in the case of a default on payments.

Originally scheduled to run until 31 December 2021, the government announced at Autumn Budget 2021 that the scheme would be extended by six months to 30 June 2022, albeit with some adjustments to its terms. The government provided a guarantee of 70% for loans made after 1 January 2022. The borrower remains 100% liable for the debt.

However, ICAEW was among those to express concerns about waning business confidence and the impact of economic factors, including growing inflation, rising fuel and raw materials costs, and wage inflation aggravated by the shortage of talent in many sectors. 

David Petrie, ICAEW’s Head of Corporate Finance, said: “The RLS is a relatively small but important proportion of all bank lending and extending the scheme is a measure that we very much welcome. Extension of the RLS benefits both businesses and their banks, at a cost to the taxpayer.”

However, Petrie warned that at some point it would be necessary to return to business lending on open market terms. “That’s when new funding gaps will inevitably open up. The government and the British Business Bank should think now about how to deal with that because that will be the next problem. At some point the music will stop on this form of state support for certain businesses and their banks, but now is not the time.”

The government is aware that access to finance is an issue for businesses and the market has become used to the availability of finance on beneficial terms. The banking sector maintains that despite widespread uncertainty, loan books are holding up well and the rates of default on the emergency loans – the Coronavirus Business Interruption Loan Scheme and Bounce Back loans – were rather lower than modelling exercises had predicted.