Small businesses struggling to get credit from Recovery Loan Scheme

Applications for Recovery Loans, designed to replace Bounce Back Loans, were in the 'low thousands' in the first week of the new scheme going live, according to reports

Small businesses are struggling to get loans through the Recovery Loan Scheme launched earlier this month to replace emergency schemes such as Bounce Back Loans, according to the Federation of Small Businesses (FSB).

Banks blame tougher credit checks and higher interest rates for the sluggish take-up.

Craig Beaumont, chief of external affairs at the FSB, told the Sunday Times that “the government should be throwing everything it’s got at getting businesses across this ‘unlock’ phase and into the recovery, to avoid businesses falling at the final hurdle because of lack of cashflow”.

>See also: How does the Recovery Loan Scheme compare with other alt-fi options?

Applications were in the “low thousands” in the first week, according to the Financial Times, with fewer again accepted as potential borrowers. Many of these applicants were existing users of government coronavirus loan schemes, the newspaper reported.

According to the FT, one of the largest UK banks received fewer than 500 applications in the first two days after the scheme went live on April 7. This same bank approved close to 2,000 applications in the same period when the Bounce Back Scheme opened last year.

Recovery Loan Scheme application rules are much more stringent than the Bounce Back Loan Scheme (BBLS).

The BBLS offered government guarantees for loans of up to £50,000 on particularly generous terms with no interest rate for the first year and only light credit checks. More than £46bn of bounce back loans were guaranteed by the government.

In contrast, the RLS carries interest rates of up to 15 per cent, extensive checks on borrowers’ financial history and viability, plus demands for personal guarantees which put the borrower at risk for any losses.

The RLS, announced at the Budget in March, provides 80 per cent guarantees for borrowing of up to £10m for individual businesses.

Beaumont has urged the government and banks to review the first month of operations to see if the application process could be streamlined or the minimum loan threshold of £25,000 reduced.

Have you had a Recovery Loan Scheme application unfairly rejected by a lender? SmallBusiness is keen to hear from small business owners whose applications have been rejected. You can email us here

Further reading on Recovery Loan Scheme

Recovery Loan Scheme 2021 full update – where do I apply for my loan?