Was the Recovery Loan Scheme extension really the answer for struggling SMEs?

Jonathan Cooper, Founder and Director of The Director’s Helpline, shares his thoughts on the topic.

The Recovery Loan Scheme (RLS) is a government-backed initiative that was first introduced in 2022, to help small and medium-sized enterprises (SMEs) unlock the funds they needed to grow and invest, but two years on and a two-year extension later, what does this really mean for the UK’s businesses?

Cliff-edge or anti-climax?

As many business owners will know, the Recovery Loan Scheme was set to end in June 2024, however at the Spring Budget, it was announced that this would be extended until the end of March 2026 – alongside being renamed the Growth Guarantee Scheme.

The Scheme remains largely unchanged and offers 70% government guarantees on loans to SMEs of up to £2m in Great Britain and £1m in Northern Ireland. But aside from the name change, is it really providing the UK’s business leaders with the support they need?

Whilst the ending of the RLS would have been an important milestone – given it was the last help scheme for businesses that have been impacted by COVID 19 – realistically, I do not think it would have been the cliff-edge moment it was perhaps being painted to be.

Jonathan Cooper

This is because the criteria needed for businesses to be able to qualify for these loans have been more difficult over the last couple of years. This means the companies that are now falling down an insolvent route would not have qualified, and would also have exhausted all the avenues available to them.

Two sides to the Recovery Loan Scheme coin

However, while the Scheme undoubtedly has its benefits, in the shape of continued support, stimulation of economic recovery, and flexibility, it’s vital for SME directors to know that even when this third iteration of the RLS ends next March, there are other funders out there actively seeking out business and wanting to lend.

Realistically, whilst all the RLSs have been welcomed for small and medium-sized businesses, we shouldn’t forget that apart from the furlough scheme – designed to protect employees – all others were, and continue to be, deferral of debt (HMRC/VAT) and loans, all of which need to be paid back.

SMEs, therefore, need to ensure they can meet interest payments and repay the loan.

As a result, having extended the RLS could also potentially increase the debt burden and long-term financial strain on businesses – potentially delaying necessary restructuring or adjustments.

Therefore, I don’t think much would have changed had the scheme closed, as business owners have been contending with an array of challenges since the pandemic – spanning energy costs, the war in Ukraine, the continuous aftermath of Brexit, interest rates to combat inflation, and the cost-of-living crisis. And they have been doing this all whilst having to contend with HMRC becoming more aggressive with historic arrears, winding up orders commencing again, and a huge economic uncertainty with the inevitable change of government coming in.

So, while viewed as a lifeline by many, the drawbacks and longevity also need to be considered. Ultimately, when it comes to effective and sustainable business recovery, directors should remain as diligent and resilient as they have had to be over the past five years, and they should look for help, assistance and guidance where possible, whilst remaining positive about the landscape.

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