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SME Funding Help Background Blog2

The COVID-19 Recovery Loan Scheme

The Government’s Recovery Loan Scheme (RLS) opened for applications in April. Under the scheme, different types of finance are available from a range of lenders accredited by the British Business Bank. Get the full info in our full guide here.

by Credit Passport

The COVID-19 Recovery Loan Scheme: what you need to know about your business’s eligibility, lending terms, and how to apply for finance

What is the COVID-19 Recovery Loan Scheme?

The Recovery Loan Scheme (RLS) launched on 6 April 2021 to support businesses that have been affected by the impact of the pandemic to recover and grow.

The successor to the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS), which closed for applications in March, RLS is a similar finance scheme. Under it, your business is 100% liable for the debt you take on.

There are four types of RLS finance, which are available from a select number of lenders accredited by the British Business Bank. The Government is aiming to encourage lending by providing an 80% guarantee against a borrower’s outstanding balance.

The terms of the loans under RLS for any given lender may not automatically be the best you can get in the marketplace. And so under the scheme, lenders are supposed to offer you better terms if their regular, commercial loans are more favourable.

RLS is open for applications from businesses of all sizes but it may not be the best choice for startups. According to the British Business Bank, the 6% per annum interest rate under its Start Up Loans programme could be more attractive for early-stage businesses.

What types of finance are available?

There are four kinds of finance available, although not all lenders will be offering all four. They are:

  • Loans
  • Overdrafts
  • Invoice finance
  • Asset finance

The amount your business can borrow depends on which of these finance types you apply for, as discussed below. It also depends on the lender’s assessment of how affordable the facility is for your business.

How much can I borrow?

Maximum amount

It’s the lender’s decision but they can offer up to £10 million per business, or £30 million for a “borrower group” - defined as the borrower and all linked enterprises.

You may not be able to borrow as much as this, however. The finance limit is capped at the lesser amount of the following:

  • £10 million
  • Double your wage bill
  • 25% of turnover.

Minimum amount

The minimum amount you can borrow depends on the type of finance:

  • Term loans and overdrafts: £25,001
  • Asset and invoice finance: £1,000

Personal guarantees

There’s a threshold when it comes to providing personal guarantees:

  • Under £250,000 - no personal guarantee required
  • Above £250,000 - personal guarantees are at the discretion of the lender.

Fortunately, if things don’t go according to plan and your personal guarantee is called upon, you will still have a roof over your head. That’s because your principal private residence can’t be included in recovery action.

In addition, the amount that can be recovered is capped at 20% of the outstanding balance after the proceeds of business assets have been deducted. So if the outstanding amount was £500,000, you’d be on the hook for £100,000.

If you’re looking for asset finance and don’t require a personal guarantee, you might get better terms from a lender’s standard, non-RLS product range.

Or if you do wish to provide a personal guarantee, it might be cheaper to go with a lender’s standard terms and purchase additional personal guarantee insurance.

A given lender’s finance terms under RLS may not be the best you can get. Under the guidance, a lender is supposed to offer you better terms if its regular, commercial loans are more favourable.

What is the length of the loan and the interest rate?

The length depends on the type of finance:

  • Term loans and asset finance - from 3 months to 6 years
  • Overdrafts and invoice finance - from 3 months to 3 years

The interest rate depends on the lender. But according to the British Business Bank, the interest rate, upfront fees and other fees can’t total more than 14.99%. You’ll be expected to pay all of these fees.

When your repayments begin also depends on the lender. However, under this scheme there is no repayment holiday. You should expect to start repaying interest and capital a month after you take out the facility and to pay them monthly thereafter.

Can I apply for a loan if I have received a loan from previous COVID schemes?

Yes, you can apply for finance under RLS if you have existing finance under the previous BBLS, CBILS or CLBILS (Coronavirus Large Business Interruption Loan Scheme). This applies even if you used the BBLS Pay As You Grow repayment options.

However, the amount you’ve previously borrowed may, under some circumstances, limit the amount you can receive from a lender under RLS.

Ultimately, it’s down to the lender to decide if the finance is affordable for your business.

What if I have been refused credit in the past?

If you have previously been refused credit, whether under previous Government COVID-19 support schemes or for any other kind of finance, you can still apply under RLS.

If you meet the eligibility criteria, the lender will review your application on its merits. Each lender carries out its own credit assessment and so the decision might vary according to the lender.

When your repayments begin depends on the lender. However, under this scheme there is no repayment holiday. You should expect to start repaying interest and capital a month after you take out the facility.

Which companies are eligible to apply?

The scheme is open to a wide range of business types, including sole traders, corporations, limited partnerships, limited liability partnerships, co-operatives and community benefit societies.

The eligibility criteria are:

  • Your business has been negatively impacted by COVID-19
  • You are UK-based and generate more than 50% of turnover from trading
  • You have a viable business proposition

You’ll need to self-certify to the lender that your business has been impacted by the pandemic. But when it comes to your future viability, lenders can choose to disregard concerns over your short- and medium-term performance.

The following organisations are not eligible:

  • Banks, building societies, insurers and reinsurers (excluding insurance brokers)
  • Public-sector bodies
  • State-funded primary and secondary schools
  • Businesses in collective insolvency proceedings.

When is the deadline for loan applications?

The Recovery Loan Scheme (RLS) is open for applications until 31 December 2021, although this date will be reviewed by the Government.

How can I apply for finance under the Recovery Loan Scheme?

The British Business Bank says you should first approach your own lender. But if you can’t access RLS finance through them, contact one of the other accredited lenders listed on the British Business Bank’s website.

If you can’t find a suitable lender immediately, check back later as other lenders will be added to the list as they become accredited.

If you get turned down by a lender, there’s nothing stopping you from trying another one.

When you make an application, you’re likely to have to supply some or all of the following evidence to prove that you can afford the facility:

  • Management accounts
  • Business plan
  • Historic accounts
  • Details of assets

How can Credit Passport help to support the application?

When a lender assesses your borrowing proposal, they will look at your business’s future performance. And while they might forgive poor prospects in the short- to medium-term, that is far from guaranteed.

Plus, every lender will carry out a range of standard checks with every application, including credit, fraud and anti-money laundering checks.

That’s where Credit Passport can help. Using our service, you can get a picture of how a lender is likely to view your business.

With our instant, real-time credit score and detailed analytics, Credit Passport gives you unique insights into your business as it is today, along with suggestions of how to improve your finances.

By using Credit Passport, you can get your business fighting fit before making an application, giving you the best possible chance of success in secure RLS finance. Click here to sign in, or join using the link below

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