UK Treasury to unveil £6bn business loan scheme
The government is expected to give the go-ahead to a new £6bn business loan scheme this week, in a bid to stave off the worst outcomes of an inevitable economic downturn.
The scheme, which is the latest incarnation of the Recovery Loan Scheme (RLS), is structured to provide at least £3bn of cheap debt per year to struggling businesses for two years.
According to The Telegraph, Whitehall insiders are already dubbing the scheme RLS2. Having launched in April 2021, the first RLS closed on 30 June. It had offered a 70 per cent government guarantee for loans of up to £2m for small- and medium-sized businesses (SMEs).
However, the original scheme attracted some criticism for failing to meet its remit of providing commercial lending to SMEs.
Gregory Taylor, head of banking and finance at accountancy group MHA, told Peer2Peer Finance News at the time that the scheme was “notably less generous” than previous loan schemes, such as the coronavirus business interruption loan scheme and the bounce back loan scheme, which discouraged SMEs from applying to it.
While the new scheme is likely to be welcomed by small businesses amid the increasingly harsh economic climate, it is anticipated that, unlike the RLS and its predecessors, borrowers will be personally liable for any defaults.
The new loan scheme follows a warning from the Bank of England that sectors exposed to rapidly increasing fuel costs and a drop in consumer spending due to the cost-of-living crisis are likely to suffer in the coming months.
Industries such as manufacturing, transport and the household goods were highlighted as likely to be particularly hard hit by the forthcoming UK recession.
Federation of Small Businesses chief of external affairs Craig Beaumont told The Telegraph that the new scheme “must open soon and be promoted better by the banks than its predecessor”.
He added that affordable credit is already “starting to dry up” for small business.
“As we head into more economic turmoil, having RLS in place could prove crucial,” he said. “If lenders pull back on commercial lending as they did in 2008, RLS could be flexed up to be a lifeline.”
A government source told The Telegraph that the loss of billions through fraud when Covid support loans were originally issued had delayed the announcement of this latest pot of cash.
According to the National Audit Office, the bounce back loan scheme, which offered a 100 per cent government guarantee, saw around £5bn was lost to fraud.
Read more: BBB: Covid schemes saved up to 500,000 businesses and 2.9 million jobs
A government spokesperson told The Telegraph: “We’ve supported the economy throughout the pandemic, providing around £400bn to help protect millions of jobs, and we continue to stand behind businesses including through government-backed loan schemes such as the ENABLE Guarantee scheme.
“We are working with lenders to see how we can best continue to support businesses.”