Recovery Loan Scheme

Overview of Recovery Loan Scheme

A new loan scheme to support access to finance for UK business as they grow and recover from the disruption of the Covid-19 pandemic was announced at the Budget on 3 March 2021. The Government announced that the Recovery Loan Scheme, a new debt finance programme, would launch on 6 April 2021. The programme is scheduled to run until 31 December 2021, subject to review.

The scheme replaces three lending programmes that were set up initially in the wake of Covid-19 last year—the Coronavirus Business Interruption Loan Scheme (CBILS), its larger cousin the Coronavirus Large Business Interruption Loan Scheme (CLBILS) and the Bounce Back Loan Scheme (BBLS).

The new scheme aims to help businesses affected by Covid-19 and can be used for any legitimate business purpose, including managing cashflow, investment and growth. It is designed to appeal to businesses that can afford to take out additional debt finance for these purposes.

The government guarantees 80% of the finance to the lender to ensure they continue to have the confidence to lend to businesses.

What type of finance will be available under Recovery Loan Scheme?

Term loans and overdrafts will be available 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.

What are the eligibility criteria for Recovery Loan Scheme?

You will be able to apply for a loan if your business is trading in the UK and that your business is viable or would be viable were it not for the pandemic, has been impacted by the coronavirus pandemic, and is not in collective insolvency proceedings.

Businesses 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.

Who can not apply for Recover Loan Scheme?

Businesses from any sector will be eligible to apply, except:

• banks, building societies, insurers and reinsurers (but not insurance brokers)
• public-sector bodies
• state-funded primary and secondary schools

What are the features of Recovery Loan Scheme?

As per British Business Bank, the scheme will include the following:

• Up to £10m facility per business: The maximum value of a facility provided under the scheme will be £10m per business. Minimum facility sizes vary, starting at £1,000 for asset and invoice finance, and £25,001 for term loans and overdrafts.
• Turnover limit: There will be no turnover restriction for businesses accessing the scheme.
• Wide range of products: Businesses will be able to choose from a variety of products: term loans, overdrafts, asset finance and invoice finance facilities.
• Term length: Term loans and asset finance facilities are available for up to six years, with overdrafts and invoice finance available for up to three years.
• Interest and fees to be paid by the business from the outset: Businesses will be required to meet the costs of interest payments and any fees associated with the facility.
• Access to multiple schemes: Businesses who have taken out a CBILS, CLBILS or BBLS facility will be able to access the new scheme, although the maximum they are allowed to borrow will depend on their lender’s assessment and scheme requirements.
• Credit checks for all applicants: Lenders will be required to undertake credit and fraud checks for all applicants. When making their assessment, lenders may overlook concerns over short-term to-medium term performance owing to the pandemic. The checks and approach may vary between lenders.

What’s the catch?

Well, not exactly the catch. RLS (Recovery Loan Scheme) lending is subject to affordability checks. Since the government is only guaranteeing 80 per cent of the loan amounts regardless of the size, borrowers and lenders may find it difficult get the funding approved. This is in line with what was offered for CBILS (Coronavirus Business Interruption Loan), but not as high as the 100 per cent guarantee on BBLS (Bounce Back Loan Scheme).

How to apply?

The Recover Loan Scheme (RLS) will launch on 6 April 2021. Further details on how to apply and details of accredited lenders will be released in due course. Keep an eye on News section of Naail & Co.