The Recovery Loan Scheme (RLS) and how it can help businesses

recovery loan scheme for businesses
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What is Recovery Loan Scheme (RLS)?

The recovery Loan scheme was introduced and announced by the Chancellor to replace the previously announced schemes such as Coronavirus Business Interruption Loan Scheme, Coronavirus Large Business Interruption Loan Scheme and Bounce Back Loan Scheme, which will be closed for applications by the end of March 2021. 

The government backs this loan scheme to help businesses affected by the Covid-19 global Pandemic. The Recovery Loan Scheme guarantees up to 80% of the losses may arise up to £10 million to the lenders. Lenders will not require personal contracts for the facility less than £250,000.

However, Lenders are expecting to get security for the facilities above £250,000. Further, lenders may require personal guarantees for the facilities above £250,000. This is at the Lender’s discretion upon their assessment of affordability. 

The government has provided the business interruption payments to cover the interest payment with the previously announced schemes. For the Recovery Loan scheme, the government will not compensate for any interest payments. The borrower will have to bear the entire cost of interest. 

The Recovery Loan Scheme is to boost up businesses affected by Covid 19 global Pandemic. In this Scheme, companies have access to loans or other financing methods to recover after the Pandemic and transition period.

It is essential to note that the Recovery Loan scheme is different from Bounced back Loan scheme (BBL) and Coronavirus Business Interruption Loan Scheme (CBILS). Businesses can still appeal for the Recovery Loan scheme even if they have already had BBL or CBILS. However, this may limit the amount that can borrow. 

This Scheme is open until 31st December 2021. But subject to review. 

Businesses can apply for Recovery Loan Scheme via all the accredited lenders listed on the British Bank website. 

Key Features of the Recovery Loan Scheme

  1. Borrowers are entitled to term loans or Overdrafts between £25,001 and £10million. 
  2. Invoice or Asset between £1,000 to £10 million per Business. 
  3. No personal guarantees are required up to £250,000, and private residence cannot be considered a security. 
  4. Up to 6 years of refund term for loans and asset finance facility 
  5. Up to 3 years of repayment term for Invoice finances and Overdrafts 
  6. The upfront fee and other associated charges, including the effective annual rate of interest, must not exceed 14.99% 
  7. Multiple Scheme to access – If you have already taken a CBILS, CLBILS or BBL facility, you are still entitled to access the Recovery Loan Scheme. 
  8. Most Lenders will not charge an early redemption fee if you want to repay the loan in advance. However, this is exclusively at the Lender’s discretion, and each Lender will have different approaches in addressing early settlement. 

Eligibility

  • If the Covid 19 Pandemic has impacted your Business, you should inform and confirm with the Lender. 
  • Trading activity should be carried out in the UK. 
  • Business should have a viable business proposition – The Lender have the right to consider if the borrower has a viable business proposition. 
  • Limit of Turnover – There are no restrictions on turnover for businesses to apply for the recovery loan scheme.

Who are not eligible to apply?

  • Public sector bodies 
  • State-funded secondary and primary schools 
  • Bank and Building Societies 
  • Insurers and Reinsurers (Does not apply for Insurance Brokers) 

What happens if the business is viable but not allowed to get the finance due to short-term disruption on Covid-19 global Pandemic

Lenders will survey the feasibility of a business before the Covid-19 disturbance tolerating that there might be short-to-medium term execution impacts. 

Since the Recovery Loan Scheme is announced to help businesses grow and recover from the Covid-19 global Pandemic, Lenders can still consider the Application to be sufficient to enable companies to recover from short-to-medium term cash flow difficulties. 

What information may the Lender request you to submit?

You may have to provide evidence to support your application and meet the affordability criteria of repaying the loan. 

  1. Financial Accounts for past three years 
  2. Management Accounts for the next 12 months or more. (Upon the Lender’s requirement) 
  3. Business Plan 
  4. Assets details 
  5. Address history for the past three years 
  6. Starting date of business trading 
  7. Projected turnover for next 12 months 
  8. Information on any existing Business Loans or Overdraft repayments 

Furthermore, Lenders will conduct Credit and Fraud checks for all applicants, and each Lender may take different approaches. 

How long will it take to process the Recovery Loan Application?

Currently, most of the Lenders are experiencing a very high demand for Recovery Loan Applications. Most of the Lenders stated that borrowers could expect an update from the Lender within seven days of submitting the Application. 

How you can use the Funds obtained from Recovery Loan Scheme

  • To help Working Capital: The recovery Loan Scheme can help businesses with everyday operations such as payment for Rent, Debt repayments. 
  • To grow your business: Obtaining a Recovery Loan could also help in growing your business. This may include enhanced public relations, acquiring new assets to provide better services to the customers. 
  • To pay a one-off cost: If your business must pay a one-off cost, you can use funds obtained from Recovery Loan Scheme to settle these costs. 
  • To help with Payroll: The main problem that businesses faced during Global Pandemic is the cash flow required to pay the employees. Even though HMRC has introduced the Furlough Scheme, companies still can use the obtained funds through Recovery Loan Scheme to support the payroll. 

What businesses should not do

  • Purchase Property: Businesses must not use the Recovery Loan Scheme to purchase any property to Business. 
  • Paying out a dividend to Shareholders: The Recovery Loan Scheme is not a government grant and must be paid back 100% by the Business. Therefore, these funds must not pay a dividend. 
  • Refinancing the existing debts: The recovery Loan Scheme is designed to focus on incremental funding to support UK businesses. The RLS cannot be used for any refinancing purposes.

Contact WIS Accountancy

If you need any help or further advice with the recovery loan scheme please contact us. We have a range of accounting services designed around your bespoke requirements. Call us on  0203 011 1898 or complete our website contact form for a call back.

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