The new government-backed loan scheme promises to provide additional finance to businesses that need it throughout 2021.
As the UK economy starts to open up, businesses can now access loans from £25,000 up to a maximum of £10 million under the £75 billion Recovery Loan Scheme. The government will provide an 80% guarantee for all loans. Interest rates have been capped at 14.99% but "are expected to be much lower than that in the vast majority of cases".
The launch comes just days after the Bounce Back Loan scheme was closed. Chancellor of the exchequer Rishi Sunak said: "As we safely reopen parts of our economy, our new Recovery Loan Scheme will ensure that businesses continue to have access to the finance they need as we move out of this crisis."
The scheme, which runs until 31 December 2021, will be administered by the British Business Bank, with loans available through a network of accredited commercial lenders.
Commenting on the launch, CBI chief economist Rain Newton-Smith said: "The coronavirus loan schemes have provided a critical lifeline to businesses, and so its successor - the new Recovery Loan scheme - comes as a huge relief to firms."
Suren Thiru, head of economics at the British Chambers of Commerce (BCC), said: "The new scheme can play a potentially pivotal role in supporting the recovery by getting credit flowing to the firms who most need it."
However, the Association of Independent Professionals and the Self-Employed (IPSE) has warned that self-employed workers are facing a "rising tide" of debt. Research by IPSE in conjunction with Starling Bank suggests that one in ten freelancers took out a Bounce Back Loan. And this is not the only type of debt that freelancers took on during the pandemic. IPSE data shows that 23% of freelancers took on credit card debt and 14% had to go into their overdrafts.
It means that many self-employed workers are now facing a growing debt problem. "Government must pay close attention to a rising tide of debt in the self-employed sector," said Andy Chamberlain, IPSE director of policy.
"As the government prepares its Recovery Loan Scheme, we urge it to closely monitor the level of debt in the sector - and not only ensure leniency from lenders, but also be ready to step in to reduce the strain on freelancers in the coming months and years."
Written by Rachel Miller.