Why should I consider a recovery loan?

Phil Archer writes:

The Bounce Back and CIBILs loans brought in last spring originally replaced the Enterprise Guarantee Scheme. In turn, they have now been replaced by a new government backed Recovery Loan Scheme, which will run until the end of this year. This is designed to help businesses gain finance if they have been affected by COVID-19.

The Recovery Loan Scheme, which first became available on April 1, 2021, is designed for unsecured loans of sums between £25,000-£10 million and can be applied for at any of the major banks.

If a business already has other borrowing, such as CIBILs or a Bounce Back loan, the applicant will need to prove they will be able to make the appropriate repayments when the time comes to be approved for a recovery loan. 

The finer details of who can apply for a recovery loan and for what purpose are, in some cases, yet to be confirmed. As I write, several banks are still ironing out their policies. 

The big question is whether the recovery loan can be used to fund start-ups. Because applicants don’t actually need a trading history, at least one major bank has already confirmed recovery loans can be used to start a new business, providing applicants can ‘self-certify’ that they need the loan to start afresh because they have been affected by the pandemic.

Anyone applying for a recovery loan for a new business will need to supply a detailed business plan. We have already been made aware of individual applications being rejected because the business plan was simply not up to scratch. Therefore, new businesses with professionally produced plans have a far better chance of being approved.

The recovery loan may also offer the option to consolidate existing finance by bringing any business loans all under one roof. This can make loans easier to manage, as there is just one regular payment. 

It also offers the chance to potentially ‘restructure’ finance, as renegotiating may offer more favourable rates on borrowing. Here, working with an independent adviser will enable good financial decisions to be made.

One key point to consider is that a recovery loan is not the only option for finance. Unsecured loans of up to £100,000 may be available elsewhere.

What applicants do need to do is to talk to an independent adviser, who can provide information on a number of schemes from many lenders. This means the right option can always be identified for individual circumstances.

If anything, the new recovery loan may have made the situation a little more complex, but with the right adviser you can still get a good result.

Our team add value not just numbers and are trusted to provide the appropriate advice dependent on individual circumstances.

d&t is a multi award-winning team of chartered accountants and expert business advisers to clients in multiple industries, as well as over 100 different franchise networks.