The original coronavirus loan schemes that provided invaluable emergency funding from the beginning of the pandemic are ending on 31st March 2021. The government shifted its focus to business recovery and growth.
This article is designed to open the debate amongst my contacts.
- Is the Recovery Loan Scheme Working?
- Is it easy to apply ?
- What pitfalls are you seeing?
About the scheme
Launched on 6 April 2021, the Recovery Loan Scheme (RLS) provides financial support to businesses across the UK as they recover and grow following the coronavirus pandemic.
You can apply to the scheme if Covid-19 has affected your business. You can use the finance for any legitimate business purpose – including managing cashflow, investment and growth. However, you must be able to afford to take out additional debt finance for these purposes.
If your business has already borrowed from any of the other coronavirus loan schemes – namely:
- the Bounce Back Loan Scheme (BBLS)
- the Coronavirus Business Interruption Loan Scheme (CBILS)
- the Coronavirus Large Business Interruption Loan Scheme (CLBILS)
RLS is still open to you, although the amount you have borrowed under an existing scheme may in certain circumstances limit the amount you may borrow under RLS.
RLS will run until 31 December 2021, subject to review.
How it works
Lenders
The Recovery Loan Scheme will initially be available through a number of lenders accredited by the British Business Bank. New lenders under the scheme will be listed on the British Business Bank website as they become accredited.
Please note: A key aim of the Recovery Loan Scheme is to improve the terms on offer to you, but if a lender can offer you the choice of a commercial loan on better terms, without requiring the guarantee provided by the RLS, they should do so.
When looking to borrow, you should first approach your own finance provider – ideally via its website. You may also consider approaching other lenders if you’re unable to access the finance you need.
Types of finance
A lender can provide up to £10 million as one of the following facilities:
- Term loan
- Overdraft
- Invoice finance
- Asset finance
Guarantees
RLS gives the lender a government-backed guarantee against the outstanding balance of the facility. As the borrower, you are always 100% liable for the debt.
If you’re borrowing £250,000 or less
The lender won’t take any form of personal guarantee.
If you’re borrowing more than £250,000
The lender has the discretion to decide whether to take personal guarantees. However:
- above £250,000, the maximum amount that can be covered under RLS is capped at a maximum of 20% of the outstanding balance of the RLS facility after the proceeds of business assets have been applied
- no personal guarantees can be held over Principal Private Residences.
Key features of the scheme
Up to £10m facility per business
The maximum amount of a facility provided under the scheme is £10m per business (maximum £30m per group). Minimum facility sizes vary, starting at £1,000 for asset and invoice finance, and £25,001 for term loans and overdrafts.
Guarantee to the lender to encourage lending
The scheme gives the lender a government-backed guarantee against the outstanding balance of the facility.
As the borrower, you remain 100% liable for the debt.
Term length
For term loans and asset finance facilities: from three months up to six years.
Personal guarantees
Personal guarantees are not permitted for facilities of £250,000 or less. Above £250,000 the maximum amount that can be covered under RLS is capped at a maximum of 20% of the outstanding balance of the RLS facility after the proceeds of business assets have been applied. No personal guarantees can be held over Principal Private Residences.
Access to multiple schemes
Businesses that have taken out a CBILS, CLBILS or BBLS facility are able to access the new scheme, although the amount they have borrowed under an existing scheme may in certain circumstances limit the amount they may borrow under RLS.
How to apply for a Recovery Loan
You can apply to your chosen lender directly for a Recovery Loan, and a list of lenders will be available on the British Business Bank website. Financiers will carry out credit checks and fraud checks, and processes may vary between different lenders.
It’s expected that lenders will take a longer-term view of business performance and suitability for this scheme – in other words, assess an application on the basis that the pandemic hadn’t happened.
If an application is sanctioned the funding can be used for any legitimate business purpose, such as growth and development, or supporting cash flow whilst the business gets back on its feet.
If you would like more information on the new Covid-19 Recovery Loan Scheme, please get in touch with our team at Lucas Ross – Business Rescue, Recovery & Insolvency. We operate an extensive network of offices around the country, and can offer you a free, same-day consultation
