Budget 2021: Recovery Loan Scheme

In his Spring Budget, the Chancellor detailed his plan for recovery, growth and investment:

1. Save jobs and businesses
2. Fix public finances
3. Building the future economy

With this, the Chancellor set out plans to provide the stimulus for businesses to rebuild, following a year of reduced activity, and invest for the future.

Recovery Loan Scheme

Key to the future of the economy is the reopening of businesses, as well as the rebuilding of trading activity. This follows a year of reduced revenue for the vast majority of SMEs. The recovery clearly required a new funding package to drive the process.

Therefore the news that the existing schemes (CBILS and BBLS) are being replaced by the Recovery Loan Scheme was welcomed by many.

How it works

From initial information available, the scheme appears to be focused on supporting investment and delivering growth. The British Business Bank stated that these loans will be available for use for ‘any legitimate business purpose, including managing cashflow, investment and growth‘.

What we know so far:

• The scheme will run from 6 April 2021 to 31 December 2021;
• Facilities will consist of a range of products: term loans, overdrafts, asset finance and invoice finance;
• Facilities will be a maximum of £10million: the starting point for facilities being either £1k of asset and invoice financial facilities and £25k for term loans and overdrafts;
• 80% government guarantee;
• Term loans and asset finance facilities are available for up to six years, with overdrafts and invoice finance available for up to three years.

These terms are all similar to those seen in with CBILS. However the main differences in the Recovery Loan Scheme from existing schemes are:

• No turnover limit on level of borrowing;
• Business to pay interest and all fees at the outset;
• Businesses have the ability to access multiple schemes. Those who have taken out a CBILS or BBLS facilities will be able to access the new scheme. However the maximum borrowing will depend on lender’s assessment and scheme requirements;
• Loans will be affordability assessed and be subject to credit and fraud checks. The British Business Bank stated in its press release that the checks and approach may vary between lenders.

As is the case with all new scheme announcements, we await greater detail around who can borrow, the full scheme criteria, and rates applied, as well as security requirements from borrowers.

More telling will be how accredited lenders assess applications. It appears they will have more flexibility in their individual approaches than perhaps was the case with the existing schemes.

Super Deduction

One of the bigger surprises coming out of the Budget was the announcement of the Super Deduction. This allows businesses to claim 130% of capital equipment purchase costs between 1 April 2021 and 31 March 2023 as Corporation Tax deduction. This will certainly be a mechanism to stimulate investment in the short-term.

Coupled with the lending via the Recovery Loan Scheme, businesses appear to have been given more opportunities to invest with confidence.

For further information, read our blog on the Super Deduction Loan Scheme.

Watch our video

For further information, watch our Business Recovery video.

If you have any queries about any of the above please get in touch with a member of our Corporate Finance team on 01903 234094.