The Recovery Loan Scheme (RLS): What you need to know

/ Posted By - Bradleys Accountants / Categories - Advice for Small Businesses

Given the struggle that small UK businesses have faced to stay afloat during the pandemic, the government has introduced the Recovery Loan Scheme (RLS).

Launched on 6th April 2021, the scheme allows small businesses impacted by COVID-19 to take out loans from any one of a group of lenders approved by the British Business Bank.

Who is eligible for the Recovery Loan Scheme?

You can apply for a loan under the scheme if your business:

  • Carries out trading activity in the UK
  • Has a maximum turnover of £45 million per annum
  • Has been impacted by the pandemic — you will need to confirm how COVID-19 has affected your operations to the lender.

RLS is also available to businesses that have already received support in the form of a Bounce Back Loan or Coronavirus Business Interruption Loan — provided you meet the eligibility criteria and lender assessments.

However, please note that the amount you borrowed previously under a different scheme may limit the amount you can borrow from RLS in certain circumstances.

During its Autumn Budget plan, the government announced that the RLS would be valid up until 30th June 2022, with the following changes from 1st January:

  • The guaranteed coverage that the government will give to lenders is cut to 70%.
  • Any single business can get a maximum of £2 million in funding, with a maximum of £6 million for a group of companies.

How the Recovery Loan Scheme works

Any business in need of additional financing to get back on its feet can approach the lenders accredited by the British Business Bank. The lender can provide up to £2 million as an overdraft, a term loan, asset finance or invoice finance.

The money borrowed can be used for any business purpose, such as cash flow management and general growth and investment. However, the business should also be able to take out extra debt finance for these purposes if needed.

The borrower is always 100% liable for the debt, while the RLS offers a government-backed guarantee against the outstanding balance:

  • For loans less than or equal to £250,000, the lender will not require any personal guarantee.
  • For loans above £250,000, the lender can ask for personal guarantees at their discretion. However, it is essential to note that the maximum RLS guarantee is capped at 20% of the outstanding balance of the RLS facility after applying business asset proceeds. Moreover, the lender cannot take personal guarantees on Principal Private Residences.

It is also important to note here that if a lender can offer a better commercial loan without needing the guarantee of the British government, the business should opt for it as the main aim of the RLS is to improve the loan terms on offer.

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    Credit and fraud checks by lenders

    Lenders will be required to conduct standard credit, fraud, Anti-Money Laundering (AML), and Know Your Customer (KYC) checks for all their applicants. During assessments, they may overlook concerns over short-to-medium term performance due to the pandemic.

    Who is not eligible for RLS?

    Building societies, reinsurers (excluding insurance brokers), public-sector bodies, banks, and state-funded primary and secondary schools cannot apply for a loan under this scheme.

    Key features of RLS

    • RLS funding can be taken out in a variety of asset classes. The minimum facility size may vary, starting from £1000 for asset and invoice finance and starting from £25,001 for overdrafts and term loans.

    • The business has to meet the interest costs and other fees charged by the RLS. However, the annual effective rate of such fees cannot exceed 14.99%.

    • The term length for asset finance and term loans is three months and six years. The term length for overdrafts and invoice finance is three and six months.

    • RLS is still open to businesses that have borrowed from any of the other coronavirus loan programmes, namely Coronavirus Business Interruption Loan Scheme (CBILS), Coronavirus Large Business Interruption Loan Scheme (CLBILS) or Bounce Back Loan Scheme (BBLS). However, the amount that the business can borrow from RLS could be limited by the amount taken out with the other schemes.

    Over to you

    The poor understanding of cash flow is why most small businesses fail. If you need money to take your business forward or if you are struggling to keep it afloat, the Recovery Loan Scheme is an ideal option — provided you meet the eligibility criteria and lender assessments.

    Get in touch with Bradleys to understand how you can receive the financial support to help your business recover through this government-backed scheme and whether it is the best way to raise finance.

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