The Recovery Loan Scheme (RLS) will be around for just another 3 months as it expires on 30th June 2022, and there are no signs that it is going to be extended.  

The scheme was in many ways a replacement for Bounce Back Loans (BBL) and CBILS but little of the major benefits of them such as of no interest for 12 months, capital repayment holidays and no fees.  

Key Points of the Scheme

  • A single scheme to replace the other loan schemes  
  • There are 83 funders who are currently participating 
  • £1k to £2m (Min £1k for asset/invoice finance. Min £25,001+ for loans and overdrafts). Maximum £6m if part of a group 
  • Maximum 6-year term 
  • A 70% guarantee from the government to the lender 
  • No personal guarantees up to £250k  
  • 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, and personal residences cannot be taken as security for any facilities 
  • There is no requirement to refinance or pay off existing CBILS or BBLs but they will be taken into account to show the business can afford the repayments 
  • Can be used for property deals in certain circumstances 
  • No interest free period, no capital repayment holiday and arrangement fees will be charged 
  • Maximum AER of 14.99% (same as CBILS).  
  • Business must self-certify that they have been impacted by COVID 
  • 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  

Considerations

There are several key points to note on the scheme though which businesses need to realise: 

1 – A full credit assessment will take place so the business has to be able to prove that they can afford to take out the additional debt 

2 – The maximum lending is still linked to other parameters, ie. 25% of the turnover in 2019, or twice the 2019 (or later) annual wage bill or justified liquidity need for 18 months. It is likely in many cases that the ‘justified liquidity’ for the next 18 months is the key here. 

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 already obtained and would then have to pay a fee to refinance it too.  

The Verdict

So, all in all this might be useful for 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 normal commercial rules, and therefore should be considered especially given the clock is ticking until it expires. 

If anyone wishes to discuss an application or to see whether it could form part of a funding strategy please contact us at Snowball.