Recovery loan (Covid-19)

UPDATED 29 March 2021

The Recovery Loan Scheme provides access to loans and other kinds of finance up to £10 million per business.

Once received, the finance can be used for any legitimate business purpose, including growth and investment.

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, whose names will be made public in due course.

Finance available

  • Term loans and overdrafts between £25,001 and £10 million per business.
  • Invoice finance and asset finance will be available between £1,000 and £10 million per business.

Finance terms are up to six years for term loans and asset finance facilities. For overdrafts and invoice finance facilities, terms will be up to three years.

No personal guarantees will be taken on facilities up to £250,000, and a borrower’s principal private residence cannot be taken as security.

Who is eligible

Any business trading in the UK who can show that your business:

  • is viable or would be viable were it not for the pandemic
  • has been impacted by the coronavirus pandemic
  • is not in collective insolvency proceedings - further details will be provided in due course

Business that have received support under the existing COVID-19 guaranteed loan schemes will still be eligible to access finance under this scheme, if they meet all other eligibility criteria.

Processing the loan

Once your receive the loan, you'll need to record it in your accounts. This includes recording the amount of the loan, the repayments and the interest charged.

There are three steps

  1. Create two new ledger accounts. This will help you trace and report on the outstanding loan amount, as well as the amount of interest you've paid, as these amounts appear as separate items on your management reports.
    1. Loan amount - This will help you trace and report on the outstanding loan amount, as it will appear as a separate item on your management reports.

      As you owe this money to the bank, the loan amount is reported on your balance sheet as a liability. As you make repayments, the balance is reduced.

    2. Interest paid - This will help you trace and report on the outstanding loan amount , as it will appear as a separate item on your management reports. This is an expense to the business it is reported separately and shows on your profit and loss. To help you track the total amount of interest paid and show this interest separately on profit and loss, you need to create a special ledger account.
  2. Record that you've received the loan.

  3. Record the loan repayments.

    Split the repayment amount into two sections; the repayment of the loan and the interest payment. This makes sure that the amount the loan reduces and the amount of interest charged increases.

Example

For this article we'll use the following example

  1. Your company receives a £15,000 loan.
  2. This is repayable over 2 years.
  3. The total monthly repayment value is £625 (excludes the VAT) for the first year, then £725 for the remaining period.
  4. This is split into £625 for the loan repayment and £100 interest repayment, when you start paying the interest after 12 months.
  5. We'll create two new ledger accounts for this purpose, 2550 for the loan amount and 7903 for the interest paid.

Create new ledger accounts

To make it easier for you to see what grants and loans you've received as part of the package of Government measures, we recommend that you create new ledger accounts for each grant or loan received.

Recording in separate ledger accounts has two advantages

  • Track payments and amount you owe.
  • Report as separate values on your management reports.

You'll need two new categories

  1. Recovery Loan - Current Liability.
  2. Recovery Loan Interest - Expense.

Create a for the loan amount

  1. From Settings, select Financial Settings, then Chart of Accounts.
  2. Select New and complete the following information:
    • Enter a Name and Display name of your choice such as Recovery Loan
    • Category Code - For example 2551.
    • You can use any number here but it's good practice to keep the numbers in each category consistent, so use a number that's close to your other Liability accounts. For the default chart of accounts use a number between 2000 and 2999.
    • Type - Current Liability
    • VAT Rate - Choose No VAT.

Create a for the interest charged

  1. Select New and complete the following information:
    • Enter a Name and Display name of your choice such as Recovery Loan Interest Paid
    • Category Code - For example 7904.
    • Type - Choose Overheads.
    • VAT Rate - Choose No VAT.
  2. Click Save.

Record receipt of the loan

In the following example, the loan amount is £15000.

  1. From Banking, select the bank account loan was paid in to.
  2. Select New, then Money In.
  1. Enter the information required to record the loan, for example:
Details VAT Rate Total
Recovery Loan (2551) Bank loan received No VAT 15000.00
  1. Click Save.

You’ve now recorded receipt of the loan. This updates your categories with the following details.

Debit Credit
Bank account (1200) 15000  
Recovery Loan (2551)   15000

Record the loan repayments

Each time you make a repayment, you must record this in Sage Accounting Start. The loan repayment appears on the Balance Sheet Report and reduces the balance on the Loans . The interest appears on your Profit and Loss Report and increases the value on the Loan interest paid .

Save time by setting this up as a recurring payment.

In our example, the repayment is split into £625 for the loan repayment and £100 for the interest paid.

If you're using bank feeds, create the payment first and then match to the transaction downloaded from your bank feed. As this is a regular payment, set up a bank rule to match the payment automatically.

Add a payment

  1. From Banking, select New, then Money Out.
  1. Enter the information required to record the loan repayment, for example:
Details VAT Rate Total
Recovery Loan (2551) Loan repayment No VAT 625
Interest paid (7904) Interest paid No VAT 100