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How the Recovery Loan Scheme Extension Affects Personal Guarantees

Posted by Todd Davison on Sep 5, 2022 1:15:00 PM

For many businesses, the recovery loan scheme provides a critical lifeline for financial recovery and growth, providing access to crucial funding required to navigate the economic challenges in the months following the pandemic. 


In July, the government announced that the scheme, which was initially set to be withdrawn in 2022, would be extended for another two years. 


Not only has the deadline for the scheme been extended, but revisions have also been made to the conditions, lifting certain limitations that were in place in 2021.


In this article, our experts look at how the loan scheme can benefit SMEs, including which businesses are eligible to apply and how much is available to borrow, as well as how it will affect the use of personal guarantees. 



What is the Recovery Loan Scheme? 


The purpose of the Recovery Loan Scheme is to help businesses gain access to loans, overdrafts and other types of finance to help them recover and grow after the pandemic. 


This was achieved by providing lenders with a government-backed guarantee for 80% of the outstanding balance of any loans provided. The scheme has helped support close to 19,000 businesses in the UK, with an average of £202,000 of funding. Any borrower is still 100% liable for any debt, despite the scheme.



What funding is available through the Recovery Loan Scheme?


The amount offered depends on each business and is down to the discretion of the lender. 

However, the potential amount varies depending on the type of finance you apply for, with the minimum set at £1000 for asset and invoice finance, and £250,000 for overdrafts and term loans. The maximum amount available is £2 million per business, and the current time frame for lending now stands at up to six years. 


It is worth noting that, with the extension, there is a lower offer of the government-backed guarantee, providing 70% cover instead of 80%



Why has the Recovery Loan Scheme been extended? 


Due to current economic challenges, such as fluctuating headwinds and rising costs, the government have found it necessary to extend the loan scheme to assist UK businesses facing increased pressures on their finances. 



How will the extension affect personal guarantees?


The loan scheme was first introduced in April 2021, at a time when businesses were struggling to recover from the impact of the pandemic. 


Originally, conditions for the loan scheme featured restrictions regarding accepting personal guarantees, meaning that personal guarantees were not accepted on facilities of up to £250,000. 


However, the revised extension has lifted these restrictions and now allows for personal guarantees to be taken at the lender’s discretion, as long as they are in line with their normal commercial lending practices. 



Which businesses can apply for the Recovery Loan Scheme? 


If your business has already received support from the loan scheme, you are eligible to apply for the extension as long as your business still meets the criteria. This includes if your business: 


  • -    Trades in the UK 
  • -    Would succeed if not for issues caused by the pandemic 
  • -    Has faced adverse effects due to pandemic-related issues


The scheme is available for businesses in a variety of sectors, apart from the following: 


  • -    Financial institutions such as banks, insurers, or building societies 
  • -    Public sector organizations including welfare, the legal system and health services
  • -    Primary or secondary schools that receive state funding


Reasons to apply for the Recovery Loan Scheme


The funds that you acquire through the scheme can be used for any legitimate business purposes, these include: 


  • -    Investing in your business, for example, purchasing new equipment or developing your marketing. 
  • -    To help manage cash flow, or help with payroll
  • -    To make a one-off payment 
  • -    To fund the expansion of your business


You can find the application for the recovery loan scheme here through an accredited lender.



Purbeck Personal Guarantee Insurance


No matter the type of business loan you take out, if you sign a personal guarantee, then it makes sense to protect your assets with insurance.


The extension of the Recovery Loan Scheme also sees a broadening of personal guarantee acceptance, meaning that it’s easier than ever for you to secure the funding that your business needs.


When using your personal assets to secure a loan, it makes sense to insure them, that’s where Purbeck Insurance come in. We’re the leading providers of personal guarantee insurance, covering up to 80% of your assets and significantly reducing your personal risk.


For advice or more information about our service, don’t hesitate to contact a member of our team today.

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