Recovery Loan Scheme - Q&A for businesses

Recovery Loan Scheme

The Recovery Loan Scheme (RLS) was announced by the Chancellor in the Spring Budget and replaces the previous coronavirus loan schemes (Bounce Back Loan Scheme / Coronavirus Business Interruption Loan Scheme / Coronavirus Large Business Interruption Loan Scheme), which closed to applications at the end of March.

The RLS has been designed to help businesses of any size as they grow and recover from the disruption of the Covid-19 pandemic. It launches on 6 April and is open until 31 December 2021 (subject to review).

What is the Recovery Loan Scheme?

The Recovery Loan Scheme (RLS) is a government backed loan scheme for businesses. The scheme supports borrowing of up to £10m for individual businesses and up to £30m across a group, and, once received, the funds can be used for any legitimate business purpose, including managing cashflow, growth and investment

RLS provides lenders with a government-backed guarantee of 80 per cent on losses that may arise on facilities of up to £10 million. Lenders are able to offer an RLS facility if, without the benefit of the guarantee, they would not be willing to lend on the same terms or would only be prepared to do so at a higher price.

Lenders may require security, including personal guarantees, for the facility. Where the facility is for less than £250,000, personal guarantees will not be taken. For facilities above £250,000, lenders are expected to take security and it is at the lender’s discretion whether they will ask for personal guarantees (subject to limitations set out below). Your Primary Residential Property will never be taken as security for any RLS facility.

Businesses who have already borrowed under the previous Covid-19 lending schemes will be eligible to apply for RLS, although any borrowing under the previous schemes will be deducted from the maximum RLS facility amount available.

Unlike the previous coronavirus loan schemes, the government will not provide Business Interruption Payments (BIP) to cover interest payments.

How do I access the Recovery Loan Scheme?

The scheme is accessible through businesses’ normal points of contact with lenders. If businesses have concerns about their finances, they should contact their lender for support as early as possible. Lenders’ dedicated Covid-19 support pages will provide further information.

Businesses do not need to contact the British Business Bank (BBB) to access this scheme. However, they may find some of the BBB’s information on the scheme useful. This can be found here.

Borrowers can apply for lending in the normal way. If a lender is accredited for RLS and considers it appropriate, they will inform the customer if the RLS is an option for them. For customers with strong credit propositions and available security, conventional lending may be more attractive.

What are the criteria for businesses to be eligible for this scheme?

To be eligible for the scheme a business must be:

  1. Able to confirm that it has been impacted by the coronavirus (Covid-19) pandemic.
  2. Trading in the UK
  3. Seeking a facility of between £25,001 and £10 million (for loans and overdrafts)
  • Or between £1,000 - £10 million for asset and invoice finance

(individual lenders will set their own minimum and maximum thresholds within this range)

  1. Must not be in collective insolvency proceedings (NI businesses must not be an ‘undertaking in difficulty’ – see below)
  2. Operating in any business sector, except:
  • Banks, building societies, insurers
  • Public-sector bodies
  • State-funded primary and secondary schools
  1. Able to evidence viability (see below).

What if a business is viable but can’t get finance because of short-term disruption as a result of Covid-19?

Lenders will assess the viability of a business before Covid-19 disruption, accepting that there may be short-to-medium term performance impacts during the current environment.

The scheme is designed to support businesses who have been impacted by Covid-19, who are looking to grow and recover following the pandemic. The finance should be deemed to be sufficient to enable a business to trade through short-term cashflow difficulties.

How do I evidence my viability?

As with other external finance applications, borrowers will need to have a sound business proposition that can reasonably be expected to enable it to meet its repayment obligations. Nonetheless, when making a credit decision, lenders may take into account any short-to-medium term impacts on business performance caused by the Covid-19 crisis. The details required to evidence viability will vary by lender but might include providing information such as recent accounts and trading information, as well as cash flow forecasts. Lenders will provide their own guidance on what information they need to assess a loan application.

Will I have to pay interest on my loan?

Yes. Unlike its predecessor schemes, the RLS does not include a 12-month BIP payment from the government and borrowers will need to pay interest on an RLS facility. Whilst pricing will vary amongst lenders, the expectation is that interest rates will take into account the existence of a guarantee from the UK government.

When can I access the scheme?

The scheme is available now. While lenders are committed to providing access to the scheme for businesses, some lenders may take a few more days to ensure the scheme can be deployed through their channels and to start accepting applications. Firms are working as quickly as they can to ensure businesses can access the support they need.

What products can I use through the scheme?

A variety of products can be covered by the scheme (as below).

  • Term loan facilities
  • Overdrafts
  • Invoice finance facilities
  • Asset finance facilities

Not all lenders are accredited for all types of products and they will be able to discuss with businesses what they can offer to best suit their needs.

Does it cover all sectors?

The scheme covers nearly all business sectors, although banks, building societies, insurers, public-sector bodies and state-funded primary and secondary schools are not eligible.

Is there any limit on the term length of products under the scheme?

Most products covered by the scheme have a maximum term of six years. However for overdraft and invoice finance facilities, terms are up to three years.

Can I access the scheme through any finance provider?

Not all lenders are accredited by the government and some may only be accredited for certain products. Many lenders are working closely with the British Business Bank to become accredited as quickly as possible. Lenders will be able to tell businesses their accreditation status and for which products.

All lenders are providing guidance on the best way to access support on their websites. This information is being updated regularly to provide businesses with guidance and to help them access the finance they need.

Will the funds available run out?

The government has indicated that there is no maximum cap set for the amount of total lending to be supported through the new scheme – it will be demand led. Therefore, there is no immediate need to approach lenders if a business does not need finance in the short-term.

Are there any differences in eligibility for businesses based in Northern Ireland?

All businesses must self-certify that they are not in collective insolvency proceedings. Businesses based in Northern Ireland and certain GB businesses may be captured by the Northern Ireland Protocol (NIP) and, if so, will need to comply with EU State Aid rules and self-certify that they were not an ‘undertaking in difficulty’ as at 31st December 2019. This is defined as SMEs who have accumulated losses greater than half of their subscribed share capital as at 31 December 2019, as well as businesses that entered into collective insolvency proceeding. Please see the BBB website for more details on this

Is the RLS a loan or a grant?

The scheme is not a grant. The scheme provides a guarantee to a lender to allow them to provide finance, but businesses will still have to repay this loan or facility.

Businesses are liable for the debt and lenders may ask for security over business assets to support the borrowing facilities, and for larger facilities above £250k, may ask for personal guarantees to cover a portion of the facility (subject to limitations set out below).

The government has announced a number of separate support measures for businesses such as grants which businesses may be eligible for. Further information on these initiatives is available here.

What sort of personal guarantee or security will businesses have to provide?

Under the terms of the scheme, security may be required, but personal guarantees cannot be used for RLS facilities of £250,000 or less. If a facility of £250,000 or less benefits from an existing personal guarantee, or at any time in the future benefits from any personal guarantee, the lender cannot make a demand or otherwise enforce such a guarantee for any amounts due under the RLS facility or apply any proceeds from such a guarantee to the RLS facility.

For facilities above £250,000, the lenders are required to take security, but the use of personal guarantees remains at the discretion of the lender. Your Primary Residential Property will never be taken as security for any RLS facility.

If a personal guarantee is used in relation to a RLS facility over £250,000, including where such a facility benefits from an existing or future personal guarantee, the following rules apply:

  1. The lender can only make a demand on a personal guarantee once they have realised all other collateral that is available to support the RLS facility. This includes collateral that is available to both the RLS facility and to other facilities.
  2. Lenders may only make a demand on a personal guarantee in connection with the RLS facility, for a maximum amount equal to 20% of the amount of the facility that remains outstanding after the proceeds of all other available collateral have been applied.

Summary

The scheme is:

  • A borrowing facility to provide financial support to viable businesses of any size as they grow and recover from the disruption of the COVID-19 pandemic.
  • Provided as a loan, overdraft, invoice finance facility or asset finance facility.
  • Available with a maximum term of six years (three years for invoice finance and overdraft facilities).
  • Accessed through accredited lenders and available on lending up to £10 million.
  • Due to go live, in most cases, from the week commencing 6 April 2021.

The scheme is open to eligible SMEs which:

  • Are able to confirm that they have been impacted by the coronavirus (Covid-19) pandemic and are UK based.
  • Operate within nearly any business sector (building societies, insurers, public-sector bodies, state-funded primary and secondary schools are not eligible).
  • Have a sound borrowing proposition and are viable (short-term Covid-19 impacts may be taken into account)
  • Are not in collective insolvency proceedings (or, for NI businesses, are not an ‘undertaking in difficulty’)

Lenders may require security for the facility, but will not take personal guarantees where the facility is for less than £250,000. For facilities above £250,000, lenders are expected to take security, and the use of personal guarantees remains at the lender’s discretion (and is subject to limitations set out above).

Lenders stand ready to support businesses throughout the period of disruption caused by Covid-19 and beyond.

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