The financial measures introduced and rolled out by the government as a response to the pandemic have been a huge lifeline to many. From supply chain issues to decreased demand, business owners have certainly had a lot to deal with. The latest financial help available, the Recovery Loan Scheme (RLS), was announced in the Budget as a successor to the Coronavirus Business Interruption Loan Scheme (CBILS).
Over the past year, we’ve been thrilled to support so many amazing small businesses through CBILS. We’re hoping to be able to do the same thing through RLS and are currently working with the British Business Bank to get accreditation. If you’d like to be the first to hear updates then you can sign up here.
In this article we’ll sketch out the details of the Recovery Loan Scheme and how you can use it to boost your business.
The main thing to keep in mind is that RLS is designed to support viable businesses through a meaningful recovery. We’ve gone through the differences between CBILS and RLS here if you want a direct comparison.
Here are the main things to know about RLS:
1. It’s open to more businesses than previous schemes
Under RLS, lenders are able to set their own minimum turnover requirement rather than the £200,000 needed to apply for CBILS. They can set it in line with their own eligibility criteria and risk appetite, so fintechs are likely to set lower rates than traditional lenders. This is great news for smaller businesses who weren’t able to apply for CBILS.
2. Borrow between £25,001 and £10 million
It’s not just turnover requirements that are more generous. While Bounce Back Loans (BBLS) similarly had no minimum turnover, they were a lot more limited in funding amounts, only going up to £50,0000. RLS offers businesses the opportunity to borrow up to £10 million and pay it back over up to 6 years
3. You’ll pay fees and interest
This is the biggest difference business owners need to be aware of. While the government covers the interest and fees for the first year of CBILS and BBLS facilities, RLS is not quite as generous.
4. Like CBILS, it’s 80% government-backed
The government guarantees 80% of an RLS facility for lenders. In theory this means that businesses are more likely to get a better rate or higher amount of funding than they might do otherwise. RLS is about giving lenders an incentive to help viable businesses, in turn helping them build back stronger. Just remember, as the borrower you’re still liable for the full amount of debt, whatever the arrangement.
5. No personal guarantees below £250,000
There’s no need for a personal guarantee if you borrow under £250,000. Above that, it’s up to the lender to decide if they want to take one as it offers them an extra level of protection if a borrower can’t repay. With a personal guarantee, the individual who takes out the loan for their business agrees to be legally responsible if the business can’t pay back the debt.
Under RLS, a personal guarantee can’t be more than 20% of the difference between the amount you borrow and the total value of your business assets. The British Business Bank has also made it clear that private homes can’t be used as a personal guarantee. However, it’s worth noting that there are stricter affordability checks than Bounce Back Loans.
- It’s based in the UK
- It’s viable, or would’ve been if the pandemic hadn’t happened
- It’s been been impacted by coronavirus
- It’s not in collective insolvency proceedings
The aim of the scheme is to help businesses of all sizes access finance so they can recover from the pandemic. An RLS loan should be a tool to help rebuild and move forward. The debt businesses take on through it should be used for improvements to the business, not just to cover long-term losses.
It’s a great tool to manage your cash flow, invest in new equipment and generally promote growth. If you’re planning an upcoming pivot that requires new software or upgraded technology, it could be funded by an RLS facility. And if you’re expecting an uptick in demand as the country gets back to normal then you could use it to help cover the cost of new hires or ordering extra stock.
As the country begins to recover and restrictions ease further, businesses will need to make sure they’re prepared. RLS funding gives you an opportunity to take your business from surviving the status quo to thriving long into the future.
The Recovery Loan Scheme is a lot more flexible and straightforward than the schemes we’ve seen so far. Size and turnover criteria is more relaxed and the amount you can borrow is less restricted.
As more alternative lenders are accredited, hopefully there will be better options out there to help even more SMEs. Find out more information about the scheme, including accredited lenders, on the British Business Bank’s website.