The Treasury is set to announce its £6bn successor to the Recovery Loan Scheme this week as small business faces a looming recession.
Treasury and the business department are expected to sign off the replacement business loan guarantee scheme, referred to as RLS2 by officials, within days.
The new business loan guarantee scheme will be less generous than the first Recovery Loan Scheme but aims to provide up to £3bn a year of debt over two years.
Nearly £80m was lent to SMEs through the initial Covid loan schemes but only £1bn was through the Recovery Loan Scheme.
The original Recovery Loan Scheme offered a 70 per cent government guarantee for loans of up to £2m to small and medium-sized firms but ended on June 30, leaving businesses which need to borrow in limbo.
Lending to small businesses is at an all-time low, according to research from the Federation of Small Businesses (FSB), with just 43 per cent of applications approved.
Fewer small businesses are also applying for finance. Just nine per cent applied in the first quarter of 2022 – the lowest proportion since the FSB started tracking SME lending.
A government source told the Daily Telegraph that RLS2 had been delayed by efforts to toughen up fraud protections following the loss of billions of pounds on Covid support.
12% of Bounce Back Loans in arrears
Only today it was revealed that nearly 200,000 small businesses are in arrears on their Bounce Back Loan repayments, nearly double the official number last reported last September.
Purbeck Personal Guarantee Insurance put in a Freedom of Information request to the British Business Bank, which administered the Bounce Back Loan scheme.
In total 193,377 firms had failed to meet their repayment terms as at 27 June.
That equates to 12 per cent of the 1.6m small businesses that took out a Bounce Back Loan and £5.7bn of outstanding debt.
Of those in arrears, 151,587 are behind by more than 90 days in making repayments, which is normally considered the benchmark for being in serious financial distress. They owe an outstanding £4.5bn.
The government has estimated that £4.9bn of Bounce Back Loans may be lost due to fraud.
Todd Davison, managing director of Purbeck Personal Guarantee Insurance, said: “The ease with which business owners and directors were able to secure Bounce Back Loans, with six years to pay off the debt, no personal guarantees and no fees may have come back to bite the UK government which is now facing the prospect of close to £5.5bn lost to the scheme in arrears, fees and interest.”
However, the British Business Bank told The Times that over 85 per cent of facilities across the three Covid loan schemes – Bounce Back, Coronavirus Business Interruption Loan (CBIL) and the CBILS scheme for larger companies — had either been fully repaid or were meeting monthly payments as scheduled, as of March 2022.
The BBB will publish more up to date official repayment figures within the next month.