Purbeck Personal Guarantee Insurance has warned that many small business owners could be excluded from the new recovery loan scheme (RLS).
The insurer said that the £12bn which the Office for Budgeting Responsibility forecasts will be advanced through the scheme is less than 20 per cent of the funding provided under the bounce back loan scheme (BBLS) and the coronavirus business interruption loan scheme (CBILS) over the past 12 months.
Purbeck estimated that approval levels for the RLS will likely be similar to the 42 per cent in CBILS, calculated as 98,344 approvals for 233,247 applications.
Access to the RLS will be dependent on stringent affordability checks and any existing use of CBILS/BBLS will be taken into account for the purpose of calculating the “business maximum amount”.
Purbeck said this could exclude many small- and medium-sized enterprises (SMEs) from eligibility and that currently, the scheme can only be accessed through 18 accredited lenders. Unlike the previous government-backed schemes, fees and interest will be incurred from day one.
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“The RLS is a welcome move but it is an entirely different proposition to the government backed schemes that went before, with much greater emphasis on affordability,” said Todd Davison, managing director of Purbeck Personal Guarantee Insurance.
“This will leave some of the most severely impacted businesses such as those operating in retail, travel and hospitality, out in the cold.
“At this stage, with just 18 lenders accredited under the scheme compared to over 100 offering CBILS, there will be less choice for SMEs until more lenders come on board. Also, of the lenders already accredited under the scheme most are banks and likely to favour existing deposit holders.
“The demand for finance will ramp up as the economy and general trade starts to open up from 12 April and businesses may wish to take on finance to help accelerate growth and smooth working capital cycles with their customers and suppliers.
“We anticipate as a result, many firms unable to access the RLS will start looking at alternative finance options which are highly likely to require personal guarantees as security for the lender.”
The RLS scheme, which was announced by Chancellor Rishi Sunak in his March 2021 Budget, opened for applications on Tuesday.
The new programme is scheduled to run until 31 December 2021, subject to review and replaces the CBILS, BBLS and coronavirus large business interruption loan scheme which all ended on 31 March.