Lending to fund losses

One of the Chancellors key announcements in the Budget last week was to replace the government guaranteed Bounce Back and Business Interruption loans – due to end for new applications from 31 March 2021 – with a new Recovery Loan Scheme (RLS).

The RLS is similar to the lapsed schemes in that it includes a government pledge to underwrite lenders risks and therefore reduce the borrower’s risk.

In a nut-shell, the government guarantees 80% of the finance to the lender to ensure they continue to have the confidence to lend to businesses. The scheme launches on 6 April 2021 and is open until 31 December 2021, subject to review. Loans will be available through a network of accredited lenders that will eventually include most of the major high street banks.

Businesses that need credit to survive the continuing disruption should consider the advisability of taking on these loans by undertaking a rigorous planning exercise. This should aim to:

  • Ensure that there is a real possibility that future resumption of trade will create sufficient cash flow to meet loan repayments as they become due.
  • That if there is a dip into insolvency – liabilities exceed asset values – that this is just a temporary situation.
  • Demonstrate that the expected gradual easing of COVID lockdown restrictions will enable the business to return to profitability, and more importantly, to start retaining profits and restoring stability to their balance sheets.

Please call if you feel there is a need to apply for funding under the new scheme. We can help you consider your options.

Source: HM Treasury Tue, 09 Mar 2021 00:00:00 +0100

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