The new Recovery Loan Scheme (RLS) has now been launched.
It is in many ways a replacement for Bounce Back Loans (BBL) and CBILS but has none of the key benefits of them such as no interest for 12 months, capital repayment holidays and no fees.
The key points of the scheme are as follows:
- A single scheme to replace the other loan schemes.
- £1k to £10m (Min £1k for asset/invoice finance. Min £25,001+ for loans and overdrafts).
- Maximum £30m if part of a group.
- 80% guarantee from the government to the lender.
- No personal guarantees up to £250k and personal residences cannot be taken as security for any facilities. Like CBILS any personal guarantees provided for facilities above £250k will be capped at 20% of the outstanding amount after proceeds from any other security is applied.
- There is no requirement to refinance or pay off existing CBILS or BBLs but they will be taken into account.
- No interest free period, no capital repayment holiday and arrangement fees will be charged.
- Maximum 6-year term.
- Maximum AER of 14.99% (same as CBILS).
- Business must have been impacted by COVID but this can be negatively or positively.
- Can be used for acquisitions and MBOs provided there is economic benefit for the business in doing so.
This is very much like the old Enterprise Finance Guarantee Scheme (EFG), a precursor to CBILS.
There are several key points to note on the scheme though which businesses need to realise:
1 – Although this has been talked about for months, there are actually only 18 (in reality 14) funders on the scheme on the day of launch. Given CBILS had more than 100 funders, this has a long way to go in order to provide more choice out there. I would have expected there to be more choice on the day of launch. So I wouldn’t rush into this in week 1!
2 – Whilst many others seem to have missed this, there is still a link to a maximum amount you can borrow which is based on 25% of the turnover in 2019, or twice the 2019 (or later) annual wage bill or justified liquidity need for 18 months. Given most lenders did not take the latter into account, this effectively means the maximum of 25% turnover is still there. So if you have already had a maximum CBILS this won’t provide you with any further funding!
3 – It is very unlikely that any business will benefit from refinancing existing BBLs or CBILS because they will lose the interest, repayment and fee benefits and would then have to pay a fee to refinance it too.
4 – This is really a top-up type facility for those who still have the scope within the maximum 25% because existing BBLs or CBILS will be taken into account into working that figure out.
5 – Applications are subject to full credit assessment by the funder so affordability will be key and showing the ability to repay the loan from cashflow and prove you are a viable business.
So all in all this might be useful for some businesses, and may make the difference to a funder being able to provide a loan under this scheme which they might not have been prepared to do under new commercial rules, but it is nothing like the previous schemes. It will have a place and will need considering in certain circumstances but unless there are changes, I don’t see this setting the world alight!
If anyone wishes to discuss an application, or whether it could form part of a funding strategy please contact us at Snowball.