SME Recovery Loan Scheme ends today – where does this leave your business?

The SME Recovery Loan Scheme (RLS), which was set up to assist SMEs dealing with the impact of coronavirus, comes to an end today (30th June).

Launched in April 2021, the RLS was set up to replace the previous coronavirus loan schemes: the Bounce Back Loan Scheme, Coronavirus Business Interruption Loan Scheme, and the Coronavirus Large Business Interruption Loan Scheme.

Under the RLS, businesses could apply for a loan worth up to £10 million and the government would guarantee 80% of the finance to the lender. However, those borrowing the money would be liable for 100% of the debt.

Although the scheme was originally scheduled to run until the 31st of December 2021, after a review in the Autumn Budget 2021, it was extended for a further six months with some significant changes. The scheme was limited solely to SMEs with the maximum amount available to businesses lowered to £2 million and the government guarantee reduced to 70%.

Back in October 2021, the British Business Bank announced that more than £1 billion had been offered to smaller businesses via the Recovery Loan Scheme.

As things stand, there is no replacement support plan in place.

New research from the Manx Financial Group also found that over the last couple of years, 22% of SMEs that needed external finance were unable to access it. So, with the RLS coming to an end, accessing necessary funds could soon become even more difficult for SMEs.

Industry reaction

Glenn Collins, (Interim) Head of ACCA UK, believes the ending of the RLS will lead to more uncertain times for small and medium enterprises. He commented: “This coming Thursday 30th June marks the end of the SME Recovery Loan (RLS) Scheme; and with no current replacement support plan in place, it will bring great uncertainty to already strained SMEs – leaving them in the lurch for the foreseeable future.

“Businesses have already experienced significant uncertainty during the pandemic and the government should have learnt from experience that avoidable gaps in support will only result in further economic pressures on the SME sector.

“Our research found that 49% of clients have been put off or have abandoned applying for finance in the past six months. The combination of rising costs of living, inflation and a skills shortage means many businesses are left short on a number of fronts. It’s vital the government doesn’t abandon SMEs and provides the support that is desperately needed for them to survive instead of creating more hurdles to overcome.

“Uncertainty of what is coming and when it will be available carries the risk of many businesses waiting rather than planning correctly for the future. SMEs need to make sure they are looking into the wider marketplace or into asset finance as options. It is essential for businesses to act now and not wait for what may eventually be put in place, especially with the increase in the cost of credit.

“Now is, therefore, an important time for businesses to have the knowledge of access and avoid sitting on their hands.”

Kirsty McGregor, Founder of The Corporate Finance Network, calls for more support from the government. She said: “The cost of living crisis coupled with existing pressures from the turbulence of the pandemic have put a further strain on already struggling small businesses in the UK. With the existing SME Recovery Loan (RLS) Scheme coming to an end this Thursday, it’s crucial the government confirms upcoming support for SMEs sooner rather than later.

“SMEs are the backbone of our economy and without further support and initiatives, they risk being left behind. Already we are seeing in our research that one in five SMEs are planning to put growth on hold due to existing levels of debt and other financial pressures, which is alarming for the short and long-term future of this vital sector of the economy.

“The British Business Bank knew that their scheme was ending on 30th June. There are rumours of a further scheme but this has not yet been announced and lenders are not able to become accredited to provide a product for this scheme. There is no excuse for a gap in provision. Why has this not been resolved well in advance of the deadline, so that the new scheme continued from 1st July?

“When the first Covid-19 scheme was announced in March 2020, there were clear failings in the rollout and it was only due to our startling research showing how many businesses were running out of cash that the British Business Bank put in other measures to speed up approvals from lenders and subsequently also introduced the Bounce Back Loan. Since that date, 1.67 million businesses have utilised the various schemes and in their own report, the British Business Bank state that, had those schemes not been in place, up to 500,000 would have closed down.

“And yet it appears that the British Business Bank has still not learnt lessons from that period and is once again going to allow these schemes to lapse whilst they create a new scheme. This demonstrates inefficiencies in the extreme and a total lack of strategic leadership.

“Alongside continued support businesses need to ensure that they are actively exploring the options available to them and the government needs to ensure that these options are being made readily available for businesses who need them. Without this, we risk the future of the UK economy.”