The government has been urged by ICAEW and business groups to consider a revised version of the Recovery Loan Scheme following concerns about the detrimental impact of geopolitical and macroeconomic factors on UK businesses.

A government flagship business loan scheme that helped thousands of businesses cope during the COVID-19 pandemic came to an end on 30 June. It 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.

Figures from the British Business Bank, which administered the scheme, show that the scheme had offered £1.06bn to businesses with a turnover below £45m through almost 6,200 facilities. Lending data for the period to 30 June are due to be published on 19 July.

The banking sector maintains that despite widespread uncertainty, loan books are holding up well and the rates of default on the emergency loans – CBILS loans and Bounce Back loans – were rather lower than modelling exercises had predicted. 

However, concerns are rife that business confidence is waning and economic factors including growing inflation, rising fuel and raw materials costs, wage inflation aggravated by the shortage of talent in many sectors, and logistical issues associated with importing and exporting are in danger of pushing many businesses to breaking point.

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. While the Recovery Loan Scheme 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 are prompting a rethink. 

David Petrie, ICAEW’s Head of Corporate Finance said: “We’ve been providing expert advice about a potential revision and improvements to the Recovery Loan Scheme. Despite news from the ONS that the UK economy grew by 0.5% in May, it’s increasingly clear that a lot of businesses are struggling with a barrage of rising costs. And while so far that’s not resulting in loan defaults to the extent that some commentators had predicted, as far as the banks are concerned, that may be only a matter of time.”

The new scheme being considered would likely be similar to the original Recovery Loan Scheme, but with some revisions to the terms and conditions, in an attempt to bolster those businesses requiring additional capital for growth. 

At the same time, ways to open up access to equity finance market are also being touted by the government, and ICAEW has already responded to a Treasury consultation on the state of the UK’s venture capital industry launched by former Chancellor Rishi Sunak in April this year. 

In its response, ICAEW has said that, broadly speaking, it is in favour of keeping VCT and EIS as they are. However, it disagrees with the idea of turning them into retail investment products, or to raise money through pension funds to go into high-risk, early-stage equity investment. “That's a mismatch between risk and return profiles,” Petrie warned. “We believe that VCT and EIS schemes should be retained, alongside other initiatives and measures, as they’re an efficient and cost-effective plug to what would otherwise be a very significant finance gap.”