The new Recovery Loan Scheme (RLS) has now been launched which is in many ways the replacement for Bounce Back Loans (BBL) and CBILS but has none of the key benefits of them such as of no interest for 12 months, capital repayment holidays and no fees.
The RLS is to help businesses as they recover and grow following the coronavirus pandemic. Finance can be taken out for any legitimate business purpose – including managing cashflow, investment and growth.
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 – The number of providers has increased considerably from launch. There are now 41 providers compared to 18 at launch, opening the market up to more competition and options.
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 later), or twice the 2019 (or later) annual wage bill or justified liquidity need for the next 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 probably will not provide you with any further funding!
However commercial property transactions (finance or refinance) can fall under the ‘justified liquidity’ aspect and so can be taken forward with funders who provide this under the scheme. Atom are the main provider here, for which we are authorised introducers to, so can assist where there is a property deal involved. Atom pass on the benefit of the governments 80% guarantee when establishing the rate of interest on the deal and therefore the rate under a Recovery Loan with Atom will be cheaper than one of their normal loans.
3 – 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 a viable business.
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.
It will have a place and should certainly be considered as an option, but it will be assessed in a different way to Bounce Back Loans and many CBILS so be prepared to have to prove viability and debt servicing.
If you wish to establish whether you qualify or can take advantage of a Recovery Loan, then please speak to us and we can explain further how it works and which of the providers is the most appropriate.
We are able to produce the full funding package and financial information required by the funder to submit for a Recovery Loan to ensure the best chance of success.