Businesses to suffer if recovery loan scheme not amended

Azets has warned that businesses are to face serious funding problems unless the recovery loan scheme (RLS) is not extended and if banks continue to refuse transfers outstanding coronavirus business interruption loan scheme (CBILS).

Azets has called on the government and the British Business Bank (BBB) to extend the recovery loan scheme to the end of 2022 and to insist that lenders accept coronavirus business interruption loans transferred under the recovery loan scheme.

The accounting, tax, and advisory firm warns that many businesses could face ‘severe financing problems’ in the latter half of 2022 if the recovery loan scheme is not extended beyond the summer as the current system is making it ‘extremely difficult’ for businesses to access its outstanding funding under the schemes.

Currently, the recovery loan scheme is scheduled to end on 30 June 2022 whilst the coronavirus business interruption loan scheme ceased in March 2021 however, many banks currently require any outstanding coronavirus business loans to be repaid before they will consider refinancing applications.

Murdoch MacLennan, banking partner, Azets said: ‘A businesses funding requirements can change quickly, and a lender’s appetite for risk and funding strategies also change, so the market for refinancing needs to be as accessible as possible.

‘The coronavirus business interruption loan and recovery loan schemes helped protect countless businesses and jobs, but there is a risk that these rigid rules could start creating extensive problems for those same businesses saved by the schemes.

‘Fortunately, a handful of lenders are now considering using the recovery loan scheme to replace a coronavirus business interruption loan facility, but that is only of any value if the RLS scheme is extended for a significant period, ideally to the end of 2022.’

Azets states that any businesses concerned about their coronavirus business interruption loan or recovery loan scheme loan should seek advice as soon as they can.

Mac Lennan added: ‘The recent Budget announcement of the recover loan scheme extension to 30 June 2022 is not enough. Hopefully the government and British Business Bank will see the merit of a solid extension to the end of 2022 and insisting that coronavirus business interruption loan can be rolled over with any refinancing.’

In October the Bank of England (BoE) warned that many companies that taken out emergency loans were at risk of collapse, as a third of the UK’s small businesses are classed as highly indebted, more than double since before the Covid-19 pandemic.

The research showed 33% of SMEs held debt levels of more than 10 times their cash balances.

The Bank of England stated that although debt appears affordable in the near term, insolvencies are likely to rise from the fourth quarter (Q4) 2021 as the governemnt’s support is wound down.


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