Everything you need to know about the Recovery Loan Scheme

If you’re a UK business that has felt the impact of Covid-19, then it’s worth looking into the recently announced Recovery Loan Scheme which launched on April 6th this year. It’s designed to give you access to Government-backed loans from accredited lenders and it runs until 31st December 2021.

We’re going to give you an overview of everything you need to know about the RLS, including who is eligible, what you need to apply and how much you can borrow. Remember though, this is a loan so the usual checks will be made, you’ll need to meet set criteria to qualify. To support your application the lender may want to see your management accounts or any historic accounts, a business plan or details of any assets.

So firstly, who can apply for the RLS? The scope is fairly broad:

• Limited Partnerships, Limited Liability Partnerships, Sole Traders and Corporations.

• Community Benefit Societies and Co-operatives.

• Any other legal entity carrying out business activity in the UK through a business bank account.

You can apply even if your business has already had a Covid-19 loan, including:

• The Bounce Back Loan Scheme (BBLS)

• The Coronavirus Business Interruption Loan Scheme (CBILS)

• The Coronavirus Large Business Interruption Loan Scheme (CLBILS)

If you have received any of these loans though, you should keep in mind that it might limit the amount you can borrow.

Who is eligible for the Recovery Loan Scheme?

You need to be able to demonstrate that your business has been affected by the pandemic and it must be UK based - generating over 50% of its turnover from UK trading activity. You also need to be engaging in UK trading activity when you draw down on the RLS.

At the lender’s discretion, they can disregard any concerns over the short to medium term business performance due to the Covid-19 uncertainty. Basically, you must have what they’d call a viable business proposition.

Finally, you cannot be in collective insolvency proceedings.

How much can I borrow and what can I use it for?

If you meet the criteria, you can borrow up to a maximum of £10 million - or £30 million for a Group. The loan can be used for any legitimate business purposes, this might include cash flow, investment or growth.

There is a minimum amount you can borrow and this is set at £1,000 for asset and invoice finance and £25,001 for term loans and overdrafts.

The types of loans available include overdrafts, asset finance, invoice finance and term loans. If you meet the lender’s criteria, you might find that you are able to use more than one of the above.

What are the terms of the loan?

Firstly, let’s look at re-payment. For term loans and asset finance, you have between 3 months and 6 years; for overdrafts and invoice finance, the time period is reduced meaning you have between three months and three years.

Some other terms:

• The guarantee for the RLS is provided by the Government.

• The business is 100% liable for the debt in all circumstances.

• At their discretion, the lender might take a personal guarantee on borrowing over £250,000.

• Any personal guarantee will be capped at 20% of the outstanding RLS facility, net of business asset proceeds.

• The lender will not take any form of personal guarantee if the borrowing is £250,000 or less.

• No personal guarantee can be held over a principal private residence.

• Your business will be required to meet the costs of interest payments and any associated fees.

• The annual effective rate of interest, upfront fee and other fees cannot be more than 14.99%.

Who are the accredited lenders and what process will they follow?

A full list of accredited lenders can be found on the British Business Bank website.

When considering you for the RLS, the lender will carry out standard credit and fraud checks, as well as anti-money laundering and Know Your Customer (KYC) checks. Having said this, if your application is rejected, there’s nothing stopping you from approaching another accredited lender.

It’s also worth pointing out that if there is a better commercial loan deal in comparison to the RLS, the lender is expected to make you aware of it.

Other points the lender will take into consideration

The lender will apply their own discretion on whether the business passes the affordability test.

The maximum loan facility is the lesser of £10 million or:

a) Double the business wage bill for 2019 or last year.

b) 25% of the applicant’s turnover in 2019.

Where a business or any of its connected businesses or partner enterprises have borrowed under the CBILS or the CLBILS, it counts toward the maximum that can be lent under RLS.

Can a business refinance their BBLS, CBILS, CLBILS or other existing business loans?

• As long as they meet the minimum RLS facility and eligibility criteria - yes.

• Important to note as regards BBLS and CBILS, any remaining Business Interruption Payment entitlement would have to be foregone as part of the refinancing.

• BBLS borrowers should note that borrowers protection and scheme eligibility differs between that and RLS.

We are accountants who support businesses and individuals throughout the UK and we are based in West Bridgford, Nottingham. Our team are happy to help and offer guidance on anything to do with the Recovery Loan Scheme, please feel free to get in touch with us.