An introduction to Recovery Loan Scheme
What is the Recovery Loan Scheme?
Announced by Chancellor Rishi Sunak in his budget on 3 March 2021, the Recovery Loan Scheme (RLS) came into effect on 6 April 2021 and runs until 31 December 2021. The scheme amalgamates three previous Government-backed financial support schemes, the Bounce Back Loan Scheme (BBLS), Coronavirus Business Interruption Loan Scheme (CBILS) and Coronavirus Large Business Interruption Loan Scheme (CLBILS). As with previous schemes, the RLS is facilitated by the British Business Bank via a group of accredited lenders.
Who is the Recovery Loan Scheme for?
Aimed at helping UK companies affected by COVID-19, a key principle of RLS is that a company would not be able to secure a commercial facility for the same amount on similar terms, or would only be able to achieve it at a higher price. As an example, this might include companies which were forced to close during lockdown such as hairdressers, gyms, restaurants or coffee shops, but the list is not prescriptive and it is worth speaking with Complete Commercial Finance’s team to see if your company would be eligible for the RLS.
What are the terms of the Government’s Recovery Loan Scheme?
Firms can borrow up to £10m for individual businesses and £30m across a group over six years to cover cashflow management, investment and growth. Minimum facility sizes apply, starting at £1,000 for asset and invoice finance and £25,001 for term loans and overdrafts. Businesses must be viable and need to demonstrate affordability with a plan for sustainable business recovery. Personal guarantees are not allowed for loans of less than £250,000, and may be considered above this at a lender’s discretion.
What type of funding does the Recovery Loan Scheme offer?
Like CBILS, the RLS is tailored to suit an individual company’s requirements with a range of options including a term loan, overdraft, asset finance and invoice finance. One of the key aims of the RLS is to improve the terms on offer to borrowers, so if alternative lending on better terms is available these should be offered by a lender.
Working with an intermediary such as Complete Commercial Finance will enable your business to find the right type of finance product with the best lender for your unique needs.
What’s the difference between the Recovery Loan Scheme and previous government-backed schemes?
Distinct differences between the previous Government’s COVID-19 business finance support schemes and the RLS is that while the Government continues to guarantee 80 per cent of the loan value, the applicant is 100 per cent liable for the debt. Additionally, there is no interest-free period and lender fees apply from the outset, typically 1-3 per cent but capped at 14.99 per cent, although it may be possible to add these costs to the loan. Companies do not have to meet a minimum or maximum turnover to apply for a recovery loan, although they will be credit assessed as with a traditional bank loan. Previous support via the Government’s recovery schemes does not affect eligibility.
What do I need to apply for the Recovery Loan Scheme?
As with all commercial finance, a business will need to provide evidence that they can afford to repay a RLS. This is likely to include current management accounts and historic accounts, a business plan and details of any assets the company owns.
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