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Recovery Loan Scheme full update

Business News

The Recovery Loan Scheme is designed to help businesses recover from Covid-19 and replaces the CBILS, CLBILS and BBLS.

The RLS is offered by a range of lenders including High Street Banks, Challenger Banks and Specialist Lenders and is set to run until December 2021.

Who can apply for the Recovery Loan Scheme?

Businesses who have been adversely impacted by the pandemic can apply. The scheme is specifically designed to support business owners as we move forward and enter a period of recovery.

What can the Recovery Loan Scheme be used for?

You can use a Recovery Loan for any legitimate business purpose, be that for asset purchase, cashflow support or to hire new staff to meet increased demand.

There are four types of finance available:  term loans, overdrafts, asset finance and invoice finance facilities.

Key Terms:

  • RLS is available to those who meet the criteria, even if the business has previously received existing Covid-19 loan support.
  • Term loans and overdrafts are available from £25,001 – £10 million.
  • Invoice finance and asset finance are available from £1,000 – £10 million.
  • The government are providing backing of 80% guarantee against the outstanding balance of the facility. 
  • The business remains 100% liable for repayment of the facility.
  • No personal guarantees need for amounts up to £250,000 and no principal private residences to be accepted as security. 
  • Term loans and asset finance available for terms up to six years.
  • Overdrafts and invoice finance available for terms up to two years.

Am I eligible?

The British Business Bank, the organisation in charge of accrediting lenders for the scheme state, ‘if a lender can offer you the choice of a commercial loan on better terms, without requiring the guarantee provided by the RLS, they should do so’. Lenders are encouraged to improve on the terms offered to customers through the RLS.

Eligibility for RLS is at the discretion of the lender. Applicants will need to qualify with the below criteria.

Qualifying Criteria:

  • Be able to self-certify that the business has been impacted by Covid-19;
  • Be UK-based in its business activity and generate more than 50% of its turnover from trading activity
  • Be engaged in trading activity in the UK at the time it draws down the facility.
  • Have a borrowing proposal which would be considered viable by the lender
  • 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

What other alternative finance options are available?

There are many other finance options available to businesses. It is worth exploring all options as you may find you are eligible for a product with more favourable terms.

If you are seeking to improve cashflow, or fund business growth, look to explore the following products:

Revolving Credit Facility
An RCF is a flexible facility that allows you to access funds as and when you need them. The facility works in a similar way to an overdraft, you can drawdown the loan amount, repay and redraw again any number of times and you’ll only pay interest on what you use. RCF’s can be used to: ​

  • Help pay for stock​
  • Fund work in progress​
  • Develop or market new products​
  • Fund short term operating cash flow demands​
  • Facilities are available from as little as £15,000 up to £2,000,000

Invoice Finance
An invoice finance facility allows you to borrow money based on what your clients owe you. After invoicing your customer, you pass the invoice to the provider who will pay you an agreed percentage of the invoice amount. Invoice finance allows you to access your funds tied up in sales invoices quickly. Key benefits include: ​

  • Up to 90% of the invoice value paid on issue​
  • Receive cash same day/next day after raising invoice​
  • Can be for a single invoice or all invoices​
  • Facility size increases as the business grows​
  • Online processes and systems that integrate with accounting packages available​

Asset Finance
Purchasing equipment, machinery or a new vehicle can be a huge outlay for SMEs, which is where asset finance comes in. There are a huge range of assets that can be financed, whether it is something new or something you already own. These include:

  • Stock
  • Fixtures and Fittings
  • IT and telecoms equipment​
  • Vehicles​
  • Plant and machinery​
  • Luxury cars, art and jewellery​
  • Environmental assets such as biomass heating or wind turbines​

Term Loan
Business loans are designed to help SMEs access the funds they need, until they can either, repay or refinance the debt.  The approval process for a short-term business loan is typically quick, making it convenient for businesses who need a quick solution.

What’s next?

There are a huge range of options and products available which makes navigating the specialist lending market complex.

The RLS scheme is still in its infancy with many lenders yet to launch their offering. With those lenders who are not yet up and running, there is still ambiguity surrounding policy. This suggests the RLS will be harder to secure than its CBILS and BBLS counterparts. Lenders will want to adhere to the strict criteria in order to comply with the British Business Bank’s rules.

For the most up to date criteria and eligibility guidance seek professional advice. It’s imperative you find the most appropriate and competitive solution for your personal circumstances before entering into a new funding agreement.

Contact the Business Team to explore business finance options.

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