ICAEW welcomed the recent government decision to extend the Recovery Loan Scheme (RLS) for a further two years to act as a boost for struggling businesses in the current economic climate. Details of the new business loan scheme were announced on 1 August and now the British Business Bank has named the first batch of accredited lenders to deliver the scheme.

The lenders – Bank of Scotland, Lloyds Bank, NatWest, Royal Bank of Scotland and Coventry & Warwickshire Reinvestment Trust (CWRT) – will be able to offer facilities of up to £2m to businesses with a turnover of up to £45m. For borrowers within the scope of the Northern Ireland Protocol the advance is limited to £1m or a lower cap due to sector-specific aid limits, for example in agriculture, fisheries and road haulage.

“Extending the RLS scheme is likely to be a very valuable source of funding for some small businesses,” said David Petrie, ICAEW’s Head of Corporate Finance. “But the clue to its success, or otherwise, lies in the name. FDs and business advisers should be very mindful that funds obtained under the RLS should be earmarked for specific projects, such as investment designed to reduce energy costs, which will genuinely aid recovery and add to the resilience of the business.”

Petrie added: “As always, FDs must ask themselves ‘Are we increasing our debt in order to make good, potentially irreversible, shortfalls in working capital, or to deliver long-term sustainable competitive advantage?’ This is especially important given current economic and geopolitical uncertainty, with the twin spectres of higher base rates and reduced demand looming.”

Additional lenders are on the way

The scheme aims to improve the terms on offer to borrowers. It is designed to be used at the discretion of the lender where appropriate. If a lender can offer a commercial loan on better terms, they will do so.

The Bank continues to review applications from a wide range of lender types – from Prudential Regulation Authority (PRA)-regulated banks to platform lenders, debt funds, invoice finance lenders, asset finance lenders and responsible finance lenders.

Additional lenders will be added to the accredited lenders listing on the British Business Bank website once they are confirmed as participants in the scheme.

Survey shows that UK SMEs are in desperate need of finance

This government announcement was released while NerdWallet’s survey of 500 UK SMEs found that one in three (33%) UK SMEs say their survival is dependent on accessing finance by the end of the year.

The financial comparison website’s research discovered that securing finance has become more difficult in the eyes of many business leaders. More than two-fifths (41%) of SMEs said finance has become less accessible than it was a year ago.

Connor Campbell, a finance expert from NerdWallet, said: “UK SMEs have been forced to overcome many challenges over the past two years. From the pressures of COVID-19 to soaring inflation, it is unsurprising that so many need to access finance to maintain operations. It is worrying, therefore, that a significant proportion of SMEs are finding it increasingly difficult to access such resources.

“The coming year is likely to present many more challenges for SMEs, and ensuring they have adequate access to funding resources will be of utmost importance.”

The study also revealed that 31% of UK SMEs applied for at least one form of business finance – such as a business loan or credit card – in the first half of 2022. However, a fifth (20%) have had a finance application rejected since the beginning of the year despite having a good or excellent credit score.

Commenting on the stats from NerdWallet, Petrie said: “If 41% of SMEs are indeed struggling to access finance for many, but of course not all businesses, that will be because their banks don’t think they will be using the money for the right things. Many may simply be applying for funding to postpone the inevitable. That’s not a ‘finance gap’ – that’s harsh economic reality.”

Recovery Loan Scheme to the rescue

The new iteration of the Recovery Loan Scheme is designed to support access to finance for UK businesses as they look to recover and grow.

Businesses can use the finance for any legitimate business purpose – including managing cash flow, investment and growth. However, businesses must be able to afford to take out additional debt finance for these purposes. Earlier iterations of the scheme provided more than £4.5bn of finance to smaller businesses between April 2021 and 30 June 2022.

The British Business Bank administers the scheme on behalf of the Secretary of State for Business, Energy and Industrial Strategy.

Read more: ICAEW welcomes Recovery Loan Scheme extension