With most of the Government’s Covid financial support schemes now closed, the Recovery Loan Scheme (RLS) has been a last route to funding for many Covid-impacted businesses.
The RLS was scheduled to end on 31 December, putting a very final full stop on government-backed financial assistance for the business community. But in the Autumn Budget & Spending Review 2021, the Chancellor, Rishi Sunak, announced an extension of six months to the scheme, making it possible to apply for a recovery loan until 30 June 2022.
So, is your business eligible for this funding? And, how much could you borrow to fund the next stage of your recovery in 2022?
Who is eligible for the Recovery Loan Scheme?
The Recovery Loan Scheme (RLS) is aimed primarily at businesses which are viable in the market, but that are struggling to recover and grow due to Covid-19. Funding of up to £10 million is available to eligible businesses that can meet the conditions for making an RLS claim.
Your business must:
• have been negatively impacted by the Covid-19 pandemic;
• be trading in the UK (more than 50% of turnover);
• be a viable business proposition, going forward.
A chance to boost your working capital
If you meet the RLS criteria, this is an excellent opportunity to borrow money on very attractive terms and to bring additional working capital back into the business. Facilities are available as asset finance, invoice finance, overdrafts or term loans.
• Within the £10 million, the maximum for an individual business is:
– double 2019 (or latest year available) wage bill;
– 25% of 2019 turnover;
– 12 months (18 months for SMEs) forecast liquidity requirements.
• The lender can choose which of the three sub-maximums to apply. Existing CBILS (but not BBL) advances come off the sub-maximum.
• The minimum loan and maximum term depends on the type of facility taken out:
– asset finance £1,000 / max 6 years;
– invoice finance £1,000 / max 3 years;
– overdraft £25,001 / max 3 years;
– term Loan £25,001 / max 6 years.
• The RLS is offered by a range of different approved lenders and each lender will determine the specific interest rates and applicable fees (taking into account the benefit of the government guarantee).
• The Government currently guarantees 80% of the loan. Personal guarantees (PGs) are not allowed for facilities below £250K. Above £250K, PGs can be required but can’t include your private residence and are capped at 20% of any shortfall after any business assets sold in event of default.
A decrease in the government-backed loan guarantee
Currently, the Government is offering a guarantee against 80% of any losses on recovery loans that are taken out via accredited lenders. This has encouraged lenders to offer loans where the decision was marginal without the guarantee, while keeping them open to a small amount of risk.
Unfortunately, an additional change to the scheme was also announced in the Autumn Budget, with the level of that government-backed guarantee dropping down from 80% to 70%. This 10% drop down to a 70% guarantee will take place for loans advanced from 1 January 2022.
The decrease in the guarantee could be problematic. It’s not yet known if currently accredited lenders will need to re-apply for re-accreditation, and this process could have an impact on prices and the availability of RLS lenders.
At present, it’s uncertain what the full impact of the decrease will mean for recovery loans. But, with an abundance of caution, we would strongly advise applying for a recovery loan before 31 December 2021, to alleviate any issues.
Talk to us about applying for a recovery loan
Lenders will want to see some form of business plan or projection before approving any facilities. We’re ideally placed to help you prepare financial projections and to provide the accounts, cash flow forecasts and background information that a lender will want to see.
Come and talk to us about the Recovery Loan Scheme and your financing requirements in general. We’ll support your applications and will help you to manage your funding needs.