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Businesses have suffered in recent years from multiple significant world events, not least the COVID-19 pandemic. Acknowledging this, the UK government has been keen to do what it can to help businesses recover from the disruption and difficulties. Part of this aid includes the Recovery Loan Scheme (RLS).
What is the Recovery Loan Scheme?
The Recovery Loan Scheme is a method of guarantee for lenders from the government that has been put in place to enable businesses to access higher levels of finance than might otherwise be possible with a view towards growth. It replaces previous loan schemes that were available through the pandemic including the Coronavirus Business Interruption Loans Scheme (CBILS) and Bounce Back Loans (BBLS).
The current phase of the RLS replaces the previous version of the same scheme that was in place between 6 April 2021 and 30 June 2022 and has slightly different levels of support and criteria.
The Recovery Loan Scheme is not designed to sustain businesses in significant trouble, but rather lends a helping hand to those businesses that are viable but suffered a loss of growth over recent years due to the pandemic.
Through the Recovery Loan Scheme, lenders are provided with a government-backed guarantee that the loan will be repaid, significantly mitigating risk and opening up a wider range of lending packages to businesses.
The Recovery Loan Scheme does not provide loans or other finance directly to a business, but merely acts as additional security for those businesses seeking finance. You are still responsible for 100% of the loan and must repay it in full, including all interest. The RLS, however, does guarantee backing of 70% should your business fall into insolvency and be unable to meet its financial obligations.
What Types of Finance are Available under the Recovery Loan Scheme?
The RLS is not limited to loans. Multiple levels of finance are available including:
- Loans
- Overdrafts
- Invoice Finance
- Asset Finance
These different types of finance dictate the size of the borrowing available. For term loans and overdrafts, the scheme will support borrowing between £25,001 and £2 million per business; invoice and asset finance is set to between £1,000 and £2 million per business.
Other terms of the RLS guarantee mean that for borrowing of £250,000 or less will not require lenders to require any form of personal guarantee, and furthermore, the lender will never ask you to use your principle private residence (your own home) as collateral.
The Northern Ireland Protocol
Businesses that fall under the Northern Island Protocol are subject to a slightly lower level of support fixed to maximum of £1 million per business.
What Businesses May Apply for the Recovery Loan Scheme?
The criteria for eligibility include:
- A UK based business, with the core of business operations in the UK.
- Having a turnover of no more than £45 million per year.
- With a borrowing proposal that is considered viable by the lender.
- Being a viable business, not in difficulty or insolvency.
- Not being a bank or building society, an insurer or reinsurer, a public sector body, nor a state funded primary or secondary school.
Despite the RLS being designed to help business recover from the COVID-19 pandemic, there is no requirement for businesses to declare that they have been impacted in this way. The exceptions are charities and colleges of further eduction, which must confirm an impact from the pandemic if less than 50% of their turnover comes from trading activity.
Businesses that have received governmental support under previous COVID-19 loan guarantee schemes (including earlier phases of the RLS) may still apply for loans under the current phase of the Recovery Loan Scheme.
What Does ‘Viable Business’ Mean for the RLS?
The Recovery Loan Scheme is meant to help businesses grow after the difficulties of the pandemic by offering access to financial options that may otherwise be slightly out of reach. It is not there to ‘prop up’ or save businesses already in significant financial trouble. In order to be eligible for the scheme, your business must be able to present a strong proposal for the funding that would typically be approved without any guarantee or backing.
This means your business must show means to make the regular repayments on the borrowing – remember, the government-backed guarantee is there to support the lender if your business were to fail, not to make repayments for you.
Companies that cannot show adequate financial strength to convince lenders of that ability to meet all relevant responsibilities, or those that are currently or potentially in insolvency proceedings, will not be considered for loans under the Recovery Loan Scheme.
How to Apply for the Recovery Loan Scheme
Only qualified lenders are able to offer financial packages with the backing of the Recovery Loan Scheme. A full index of these lenders is available from the British Business Bank website.
To apply, you need to approach one of these accredited lenders for finance in the usual manner. This can be directly or through a qualified broker.
Every step of applying for RLS-based finance follows the lender’s standard application process, using their standard range of products. The Recovery Loan Scheme will mean that you are able to consider larger avenues of finance than may have been available without the support, but it does not offer any additional unique lending packages.
The lender will assess your application for finance in the usual manner, accounting for the support of the RLS. It may be that they are able to offer you alternative lending that is better suited to your business needs than one backed by the RLS, and these should be considered as equally viable.
All borrowing is provided at the discretion of the lender and is subject to standard due diligence. This includes checks for credit history, fraud, Anti-Money Laundering (AML), and Know Your Customer (KYC).
Recovery Loan Scheme FAQ
I previously had government support through CBILS or BBL – am I entitled to apply for RLS?
Yes. The Recovery Loan Scheme is available to all eligible businesses irrespective of previous pandemic-based financial support.
I was turned down by my first choice of lender for the Recovery Loan Scheme, does this impact future applications?
No. As each lender is independent and performs their own checks for qualifying criteria, an loan rejection from one doesn’t prevent you from applying to another.
What length of loans and overdraft facilities are covered by the RLS?
For loans and asset finance, the maximum length of the facility is 6 years. For overdraft and invoice finance, it is 3 years.
My company is close to bankruptcy – can I apply for an RLS backed loan to see us through this difficult patch?
No. Your company must show long term viability to the lender in order to be considered for finance. Unfortunately, companies in the process of insolvency or facing considerable financial difficulty are not eligible for support through the RLS.
I am a sole trader – may I apply for a Recover Loan Scheme-backed loan?
Yes. Sole traders and partnerships are eligible for finance backed by the RLS.
How Cashflow Solutions Can Help You Get RLS Financing
At Cashflow Solutions we have a team of experts on hand to support you through your RLS application. Our advisors have access to the full range of lenders accredited by the Recovery Loan Scheme and will help ensure you get the best loan at the lowest possible rates.
Contact us today for more information.
Working in partnership with our lending partners backed by the British Business Bank to deploy funds to support business growth and working capital
