The Recovery Loan Scheme was introduced by the UK Government in 2021 to support businesses as they recover and grow following the coronavirus pandemic. In other words, the RLS scheme supports businesses who can afford to take out additional finance.
Recovery Loan Scheme (RLS)
The Recovery Loan Scheme (RLS) continues to aid businesses suffering from Covid-19 to use for business purposes including managing cash flow, investments, and growth. Whilst the various support schemes have gone some way to preserving liquidity and keeping the wheels turning through the most challenging moments during the pandemic, many firms may not have considered how servicing their existing indebtedness (such as Hire Purchase Agreements) in addition to COVID loans will impact on their future viability. Particularly at a time when most lenders are now taking a much stricter approach to forbearance measures. This means funders are becoming less lenient on holding off the enforcement of a debt, unlike during the pandemic where a lot of lenders allowed 3 or 6 month gaps in payments.
Businesses who have previously taken out a CBILS, CLBILS, OR BBLS facility are able to access the new scheme, however the amount borrowed under previous schemes may limit the amount borrowed under RLS.`
One of the main aims of the Recovery Loan Scheme is to improve the terms on offer to businesses. However, if a bank or lender can offer a business the option for a commercial loan on better terms, without requiring the guarantee provided by the RLS, they should do so.
The Recovery Loan Scheme includes several features starting with a maximum of £2m facility per business (maximum £6m per group). Minimum facility sizes vary – starting at £1,000 for asset and invoice finance, and £25,001 for term loans and overdrafts. This provides flexible options for businesses of different sizes and structures, making sure you don’t slip through the cracks.
PMD has supported several businesses in accessing the Recovery Loan Scheme to help with their cash flow and speed up business growth. Below is a case study:
Manufacturing – £250,000 RLS Loan
- Fast growing manufacturing business was bumping up against Credit Limits with suppliers which was slowing down growth.
- A £250k Recovery Loan Scheme loan improved cash flow so they weren’t hitting the credit limits.
- They were then able to negotiate discounts with certain suppliers for paying pro-forma to mitigate the costs.
Recovery Loan Scheme Features
Another feature introduced with the Recovery Loan Scheme are the various term lengths. Term loans and asset finance facilities are available from three months, for up to six years. Overdraft and invoice finance term lengths starting from three months, for up to three years.
Other important features to consider include fees and interest incurred during the scheme. From the outset, the borrower must pay these. Businesses must meet the costs of interest payments and any fees that associate with the RLS facility.
It’s still beneficial for larger amounts, with any advance above £250,000 only requiring a personal guarantee up to maximum of 20% after the proceeds of business assets have been applied. It’s important to note that no personal guarantees are taken on principal private residences.
In addition to this, the RLS provides the lender with a government-backed guarantee against the outstanding balance of the facility. Remember: The borrow always remains 100% liable for the debt.
Having said this, there are several qualifying factors to consider ensuring that you and your business is eligible to apply for the Recover Loan Scheme.
- Covid-19 Impact: The borrower must be able to confirm to the lender the impact by Covid-19.
- UK Based: The borrower must be carrying out trading activity within the United Kingdom.
- Turnover Limit: Businesses who are eligible for the RLS must have an annual turnover of no more than £45M per annum.
- Viability Test: The lender will take into consideration that the borrower has a viable business proposition. It may disregard any concerns over its short-to-medium business performance due to interruptions and impacts caused by Covid-19.
- Credit and fraud checks for applicants: Lenders must undertake credit and fraud checks for all applicants. The checks and approach may differ between lenders.
The following businesses will not be eligible under RLS:
- Banks, Building Societies, Insurers and Reinsurers (excluding Insurance Brokers)
- Public sector bodies
- State funded primary and secondary schools.
However, if you’re not eligible for the Recovery Loan Scheme, don’t worry. PMD Business Finance offers a variety of finance solutions with access to over 150 lenders to help support you and your business. Our dedicated team of experts will put you in touch with the right people to help you grow your business. Alternatively, contact us here and a member of our friendly team will be in touch to support you.
RLS is managed by the British Business Bank on behalf of, and with the financial backing of, the secretary of state for business, energy & industrial strategy. British Business Bank plc is a development bank wholly owned by HM Government.
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