As part of its continuing commitment to help British business through this pandemic, the government announced the introduction of the Recovery Loan Scheme (RLS) at the Spring Budget. This scheme was launched on 6 April 2021 and will run until 31 December 2021.
The key criteria to be able to access the RLS is that you can apply if Covid-19 has affected your business and you can use the finance for any legitimate business purpose, which includes managing cashflow, investment and growth. We will pick up on the latter points again below.
If you have already taken out a Bounce Back Loan (BBL), or a Coronavirus Business Interruption Loan (CBIL), or even a Coronavirus Large Business Interruption Loan Scheme (CLBIL), you can still apply for the RLS. These other loans will be taken into account when calculating how much you can borrow.
The RLS will be available initially through a select number of accredited lenders and they can provide up to £10m via a term loan, overdraft, invoice finance or asset finance. The RLS gives the lender a government-backed guarantee against the outstanding balance of the facility, but the borrower is always 100% liable for the debt. If the amount borrowed is less than £250k, then the lender will not take any form of personal guarantee.
The previous schemes, namely the BBL, CBIL and CLBIL schemes all came to an end on 31 March 2021. The RLS is the replacement. Government-backed guarantee up to at least £250k (dependent upon the lender) is a continuation of what was in place previously and dependent upon the type of facility, repayments can be spread anywhere between three months and six years (overdrafts and invoice finance facilities maximum of three years).
So, should business seriously look at the Recovery Loan Scheme?
The RLS is a form of debt that needs to be repaid. Careful consideration should be given to this fact. Also, if you already have a BBL or a CBIL in place, will a lender give you much more on top of what you already have?
When comparing the RLS to the previous schemes, there is subtle change to the wording within the detail. The funding can be used for…’managing cash-flow, investment and growth’. The previous schemes placed more emphasis on protecting working capital cash-flow and to aid recovery. Any investment type activity certainly would not have qualified previously. The government want to incentivise investment, this was quite clear in the last Budget and so the wording tweak is a welcome change of emphasis for business.
Therefore, if you need funding for investment or growth then this new scheme should be looked at. Why? The government-backed guarantee; the capping of interest rates; a range of facilities to choose from, to name a few reasons. As always, speak to your bank manager and advisors as part of thought process, as it needs to be the right type of funding and it needs to be affordable, but it should also fit in with your long-term business plan.
The RLS gives business an opportunity to re-finance those BBL or CBIL loans that were taken out in 2020, where the terms of the loan may now be more favourable under the RLS. There could be other funding alternatives too that would now be available to business as part of this thought process.
Here’s a few of the key Recovery Loan Scheme considerations:
- The British Business Bank offers a good reference point for the RLS.
- The RLS is a form of debt and so this needs to be factored into your thought processes. How does this fit into your overall medium to long-term business plan?
- Talk to your existing bank first. They know you and your business and will be able to guide you through what options are available to you; it might not be the RLS. The earlier you have this conversation, the better.
- Are you preparing regular cash-flow forecasts for your business and do you understand the quantum and the timing of any additional cash needed? Is there truly a need for additional cash?
- Are you monitoring business performance through monthly management reports and can you demonstrate this when speaking with potential lenders?
- The government is clearly keen to promote business investment. However, there are other incentives the Chancellor announced at the Budget, which should also be considered.
If you have questions about funding and finance for your business, or are considering a Recovery Loan Scheme application, please do get in touch and our team of experts will be happy to help you.
You can also download the latest episode of our 2 + 2 podcast, which offers advice and tips on funding and cashflow including details of the Recovery Loan Scheme.