What is the Recovery Loan Scheme (RLS) and how does it differ from the schemes it replaces?
The government’s new recovery loan scheme, announced by the chancellor on 3 March 2021, aims to support UK businesses of any size as they recover from the pandemic with loans between £25,000 and £10m. In a similar way to previous support measures, a government guarantee for lenders is included in this initiative.
There are two key differences between RLS and the schemes it replaces (BBLS, CBILS and CLBILS):
- Interest and fees – you’ll have to pay interest (and fees) from day one under the Recovery Loan Scheme because the British Business Bank will no longer pay your interest and fees for the first 12 months.
- Loan size – there is no turnover restriction under the Recovery Loan Scheme but the maximum loan amount is now capped at £10m.
When does the scheme start and end?
The Recovery Loan scheme launched on 6 April 2021 and closes on 31 December 2021, “subject to review”.
Which businesses are eligible?
UK businesses of any size can apply for a loan or overdraft. This is the main difference between the Recovery Loan Scheme (RLS) and the coronavirus finance support schemes it replaces (BBLS, CBILS, CLBILS). With the RLS there are no restrictions on turnover.
Your business must, however, meet certain criteria in order to access the scheme including:
- Be a UK trading company that generates more than 50% of its turnover from trading activity
- Be viable (or would be viable were it not for the pandemic)
- Have been impacted by the coronavirus pandemic
- Not be in collective insolvency proceedings
- If a lender can offer finance on normal commercial terms without the need to make use of the scheme, they may do so
Two more things to note:
- Lenders are required to undertake credit and fraud checks for all applicants to the Recovery Loan Scheme – the checks and approach may vary between lenders.
- Lenders will not take personal guarantees on facilities up to £250,000, and lenders cannot take a borrower’s principal private residence as security.
Can a business apply for the Recovery Loan Scheme if they’ve had a Bounce Back Loan or borrowed under CBILS or CLBILS?
Yes, a business can apply for finance under the Recovery Loan Scheme (RLS) even if it has already borrowed under BBLS, CBILS or CLBILS. A business might be able to borrow more under the RLS than it has already – though the maximum you can borrow will depend on your lender’s assessment and the scheme requirements.
How much can I borrow?
The amount your business can borrow under the Recovery Loan Scheme will depend on which type of finance they choose. There are two main types of finance:
- Borrow between £25,001 and £10m (per business) for term loans and overdrafts
- Borrow from £1,000 to £10m (per business) for invoice finance and asset finance
When do I need to pay the money back?
Term lengths depend on the type of finance chosen:
- Borrow for up to six years for term loans and asset finance facilities
- Borrow for up to three years for overdrafts and invoice finance facilities
How does the government guarantee work?
The Recovery Loan Scheme operates in a similar way to the previous support measures, with the government giving lenders an 80% guarantee. This means that if a business defaults on the loan, the lender can recoup 80% of the outstanding value of the loan from the government. This guarantee gives lenders confidence to lend to businesses. The borrower remains 100% liable for the repayment of the facility.
What can the funds be used for?
If your application is successful you can use the Recovery Loan Scheme finance for any legitimate business purpose, including managing cash flow, investment and growth.