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Recovery loan scheme for business explained

Since the beginning of the pandemic the Government has financed a range of loan schemes to help businesses mitigate the economic effect of Covid-19. In January 2021, the government announced it would be extending the deadline for applications for these until 31 March 2021, after which a new successor loan programme would be introduced.

The Recovery Loan Scheme (RLS), aimed at helping businesses recover and grow, came into effect on 6 April 2021 and is due to run until the end of the year. Available on similar terms to previous government loans, the RLS is a form of debt assistance offering a government-backed guarantee of up to 80% to the lender. The business remains 100% liable for repayment of the debt.

The loan can be used for any legitimate business purpose, such as cash flow, investment, and growth.

The key features of the scheme include:

• Up to £10m per business (maximum £30m per group) can be borrowed and supported by the RLS guarantee through one of the following facilities: a term loan, overdraft, invoice finance or asset finance.
• Minimum facility sizes vary, starting at £1,000 for asset and invoice finance and £25,001 for term loans and overdrafts.
• Term loans and asset finance facilities are available on repayment terms of up to six years and overdrafts and invoice finance facilities for up to three years.
• For facilities for £250,000 or less, personal guarantees cannot be taken.
• For facilities above £250,000 personal guarantees may still be required but no recovery action can be taken over a Principal Private Residence.
• The maximum amount that can be covered under the RLS is capped at 20% of the outstanding balance of the RLS facility after the proceeds of business assets have been applied.
• Businesses will be responsible for meeting fees associated with the RSL facility. The annual effective rate of interest, upfront fee, and other fees cannot be more than 14.99% 

The scheme is available through a number of lenders accredited by the British Business Bank. Not every accredited lender is providing every type of finance under the scheme and the amount of finance offered will vary between lenders.

It should be noted that the key aim of the RSL is to improve the terms on offer to businesses and urges those looking to borrow in the first instance to approach their own finance provider in case they are able to offer the choice of a commercial loan on better terms and one that doesn’t require the guarantee provided by the RSL. 

Businesses that have already borrowed from any of the other Government Covid-19 loan schemes, namely the Bounce Back Loan Scheme (BBLS), the Coronavirus Business Interruption Loan Scheme (CBILS) and the Coronavirus Large Business Interruption Scheme (CLBILS) are still eligible, although the amount borrowed from any of these schemes may affect how much can be borrowed under the RSL.

To be eligible for the RSL businesses need to be trading in the UK and must demonstrate that they meet the following criteria:

• They have been adversely impacted by the pandemic
• Would be viable were it not for the pandemic
• Be UK-based in their business activity and generate more than 50% of their turnover from trading activity (Ie the sale of goods or services)
• Be engaged in trading activity in the UK at the time they draw down the facility
• Must have a borrowing proposal considered viable by the lender
• Must not be in collective insolvency proceedings

The decision on whether a business is eligible for the RLS will be at the discretion of the lender who is therefore likely to ask for proof of creditworthiness. This could include providing a business plan, details of business assets, historical accounts and management accounts if applicable.

A list of the accredited lenders on the British Business Bank’s website can be found here.

If you would like our help in preparing your loan application or reviewing your business plans to help you decide where the money would be best used, please let us know.

29/10/2021