Recovery Loan Scheme Launches Today

Recovery Loan Scheme Launches Today

The new Recovery Loan Scheme will ensure businesses continue to benefit from Government-guaranteed finance throughout 2021.

With non-essential retail and outdoor hospitality reopening next week, Ministers have ensured that appropriate support is still available to businesses to protect jobs. From today, all businesses – ranging from coffee shops and restaurants, to hairdressers and gyms – can access loans varying in size from £25,000, up to a maximum of £10 million. Once received, the finance can be used for any legitimate business purpose, including growth and investment.

The Recovery Loan Scheme (RLS) will operate UK-wide, providing an 80% guarantee to lenders for term loans, overdrafts, and invoice and asset finance. The maximum loan size across all products will be £10 million (maximum £30m per group); the minimum loan size will be £25,000 for term loans and overdrafts, and £1,000 for invoice and asset finance.

Term loans and asset finance facilities will be available for up to six years, with overdrafts and invoice finance being available for up to three years.

There will be no turnover restriction for businesses accessing the scheme.

Any business trading in the UK will be eligible to apply, and applicants will need to demonstrate to lenders that they are viable (or would be were it not for the pandemic) and have been impacted by the pandemic.

When you apply for finance from RLS, you’ll need to provide certain evidence to show that you can afford to repay the RLS-backed facility. This is likely to include management accounts, a business plan, historic accounts, and details of assets. Decision-making on whether a business is eligible for RLS is fully delegated to the British Business Bank’s accredited RLS lenders.

The RLS will give the lender a government-backed guarantee against the outstanding balance of the facility. As the borrower, you are always 100% liable for the debt. If you’re borrowing £250,000 or less, the lender won’t take any form of personal guarantee. If you’re borrowing more than £250,000, the lender has 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.

Lenders will be required to undertake standard credit, fraud, Anti-Money Laundering (AML) and Know Your Customer (KYC) checks for all applicants. When making their assessment, lenders may overlook concerns over short-to-medium term performance owing to the pandemic.

The scheme will be administered by the British Business Bank via a diverse network of accredited commercial lenders. 26 lenders have already been accredited for day one of the scheme, with more to come shortly, and the government will provide an 80% guarantee for all loans. Interest rates have been capped at 14.99% and are expected to be much lower than that in the vast majority of cases, and the government is urging lenders to ensure they keep rates down to help protect jobs. Businesses are required to meet the costs of interest payments and any fees associated with the RLS facility.

The Recovery Loan Scheme can be used as an additional loan on top of support received from the emergency schemes – such as the Bounce Back Loan Scheme and Coronavirus Business Interruption Loan Scheme – put into place last year. The amount a firm has borrowed under an existing scheme may in certain circumstances limit the amount it may borrow under RLS.

More information about the RLS can be found on the British Business Bank website.

The Recovery Loan Scheme will run until 31 December 2021, subject to review. It will ensure lenders continue to have the confidence to provide support, and viable businesses can access Government-backed finance throughout 2021 following the disruption of the pandemic.

“I said we would do whatever it takes to protect jobs and livelihoods and that is exactly what we have done,” the Chancellor of the Exchequer, Rishi Sunak, said. “We’ll continue to protect jobs through our new Recovery Loan Scheme – part of our wider Plan for Jobs – as we move out of this crisis.”

The Recovery Loan Scheme has been introduced in addition to furlough being extended until 30 September, and the new Restart Grants scheme launched last week, providing funding of up to £18,000 to eligible businesses. The Government is also supplementing this with the Plan for Jobs, focused on protecting, supporting and creating jobs across the country through the Kickstart scheme, T-level and a National Careers Service.

So far, the government’s emergency loan schemes have supported more than £75 billion of finance for 1.6 million British businesses and this new scheme will build on that success. This is part of the government’s unprecedented £350 billion support package which has included paying millions of workers’ wages through the furlough scheme and generous grants and tax deferrals.

Image: opolja / Adobe Stock

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Sebastien Fontenoy holds an MBA degree and writes about entrepreneurship, startups and finance.