Recovery Loan Scheme: a guide

Launched on 6 April 2021, the Recovery Loan Scheme (RLS) is aimed at providing financial support to qualifying UK businesses as a result of the coronavirus pandemic. The scheme replaces the now closed Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS).

The financial support available by the scheme is available for any legitimate business purpose, including managing cashflow, investment and growth.

The key aim of the RLS is to improve the terms on offer to UK businesses. However, if a lender can offer you the choice of a commercial loan on better terms, without requiring the guarantee provided by the RLS, they are required to do so.

Businesses that have already borrowed from any of the other Coronavirus loan schemes; Bounce Back Loan Scheme (BBLS), Coronavirus Business Interruption Loan Scheme (CBILS) or Coronavirus Large Business Interruption Loan Scheme (CLBILS), are still able to access RLS. However the amount already borrowed under an existing scheme may limit the amount available to borrow under RLS.

How does it work?

RLS is set to run from 6 April 2021 to 31 December 2021, subject to review.

The scheme will initially be available through a number of lenders accredited by the British Business Bank. Any new lenders under the scheme will be listed on the British Business Bank website as they become accredited.

The scheme allows eligible businesses to access finance of up to £10 million, via the following facilities:

• Term loan
• Overdraft
• Invoice finance
• Asset finance

RLS gives the lender a government-backed guarantee against the outstanding balance of the facility. The borrower remains 100% liable for the debt.

For facilities of £250,000 or less, lenders will not take any form of personal guarantee. For facilities of more than £250,000, lenders have the discretion to decide whether to take personal guarantees. However:

• Above £250,000, the maximum amount that can be covered under RLS is capped at a maximum of 20% of the outstanding balance of the RLS facility after the proceeds of business assets have been applied.
• No personal guarantees can be held over Principal Private Residences.

Application requirements

To meet the eligibility criteria businesses must:

• Be trading in the UK
• 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

Key features

• Up to £10m facility per business – The maximum amount of a facility provided under the scheme is £10m per business (maximum £30m per group). Minimum facility sizes vary, starting at £1,000 for asset and invoice finance, and £25,001 for term loans and overdrafts.
• Term length– Term loans and asset finance facilities can range from three months up to six years. For overdrafts and invoice finance facilities terms are from three months up to three years.
• Interest and fees to be paid by the business from the outset – Businesses are required to meet the costs of interest payments and any fees associated with the RLS facility. The annual effective rate of interest, upfront fee and other fees cannot be more than 14.99%.
• Turnover limit – No turnover limit.
• Personal guarantees – Personal guarantees are not permitted for facilities of £250,000 or less. For facilities above £250,000 the maximum amount that can be covered under RLS is capped at a maximum of 20% of the outstanding balance of the RLS facility after the proceeds of business assets have been applied. No personal guarantees can be held over Principal Private Residences.

Further guidance on applying for the Recovery Loan Scheme is available here.

If you would like any further advice, please contact a member of our Corporate Finance team on 01903 234094..