In April 2021, the government launched a new loan scheme to help businesses recover from Covid-19. In partnership with a number of financial institutions, the Recovery Loan Scheme (RLS) helps companies that have been affected by Covid-19 with funds being made available to assist them with cash flow, investment in equipment or staff and business growth.
The scheme is open to all businesses even if they had already taken advantage of other government loan schemes, including:
● The Coronavirus Business Interruption Loan Scheme (CBILS);
● The Bounce Back Loan Scheme (BBLS); and
● The Coronavirus Large Business Interruption Loan Scheme (CLBILS).
Whilst it was set to end on 31st December 2021, Chancellor Rishi Sunak announced in the Autumn Budget that the RLS would be extended to 30th June 2022. However, from 1st January 2022, there will be some changes to eligibility. So, if you’re struggling to recover after Covid-19, is your business eligible for the Recovery Loan Scheme?
What is the Recovery Loan Scheme and how does it work?
The RLS replaces the above coronavirus support schemes for businesses and is supported by accredited financial institutions including:
● Lloyds Bank
● Bank of Scotland
● Clydesdale Bank
● HSBC UK
● Secure Trust Bank
● Skipton Business Finance
● Ulster Bank
● Yorkshire Bank
Only lenders that have been accredited by the British Business Bank are able to provide loans under the RLS scheme. However, not every lender provides the same type of finance nor exactly the same terms so you will need to conduct your due diligence to ensure you get the right funding for your business.
Businesses are able to apply for funds from £1,000 up to £10 million for each business (£30 million maximum for a business group), although the minimum amount does vary. If you are applying for £250,000 or lower, there is no requirement for a personal guarantee; higher than this and a guarantee is needed and lenders are only able to claim 20% from the government once the business’s assets have been utilised. The level of interest paid on the loan varies according to the lender but it is capped at 14.99%.
The RLS is similar to a business loan but the government is guaranteeing the major portion of the bad debt. The types of RLS funding are:
● Term loans from £25,001 up to a maximum of £10 million for each business.
● Overdrafts from £25,001 up to a maximum of £10 million for each business.
● Invoice financing from £1,000 up to a maximum of £10 million for each business.
● Asset financing from £1,000 up to a maximum of £10 million for each business.
However, when the RLS was extended to 30th June 2022, there were also several crucial changes to the scheme’s eligibility criteria which became effective from 1st January 2022. These are:
● Only small and medium-sized businesses and enterprises that have a turnover of less than £45 million will be able to apply for the Recovery Loan Scheme.
● The maximum level of finance available is changing to £2 million for each business (the maximum level of finance for a business group is £6 million), which represents a very significant change.
● The government will only guarantee 70% (previously 80%) of the loan debt for lenders.
Every lender has its own processing lead time for applications as well as different terms in respect of when the changes will be implemented. For example, some lenders may say that if the application process has started before the 1st January 2022 deadline, the previous level of finance may remain applicable. However, other lenders may state that the application process must be completed prior to the changes coming into effect. Always check with your lender before you proceed with an RLS application.
That said, if the lender has a better financing option for your business, they must present it to you as a potential alternative. The only difference between RLS funding and another form of a business loan is that the government guarantees 70% of the loan. As a borrower, it is the business that is 100% liable for the loan.
Eligibility criteria for a Recovery Loan Scheme application
Until 31st December 2021, most businesses in the UK are eligible for the Recovery Loan Scheme as long as they are still trading and can prove Covid-19 has impacted their business. But as with all loans, the business must be in a financial position to be able to pay back the loan.
The eligibility criteria for RLS funding is available if:
● You can prove your business has been affected by the Covid-19 pandemic;
● Will be continuing to trade in 2022 in the UK;
● You have a viable business proposition for your lender.
● You can pay back the loan at affordable repayments, for the duration of the term.
You will need to supply a set of management accounts to your lender, including historic accounts, a business plan for the next year to two years (or longer if the loan is over a longer period of time) and details of the business’s assets.
If your business has already had funding from an alternative government loan or grant, such as BBLS, CBIL or CLBILS, you are still able to apply for the RLS as long as you continue to meet the eligibility criteria.
The types of business that are not eligible for the RLS are:
● Banks and building societies;
● Insurance and reinsurance companies (excluding insurance brokers);
● Public sector bodies;
● State-funded schools;
● Any business currently involved in a form of insolvency proceeding, including the early stage of receiving advice from an insolvency practitioner.
As we head into the new year with the spread of the Omicron coronavirus variant hitting the UK, it is expected that once more, businesses in certain sectors will be seriously affected by Covid-19 and the applications for the RLS will increase.
Company or individual insolvency is not something that anyone wants to deal with. However, the sooner a financial problem is recognised, the sooner it can be dealt with and the more potential the company has in recovering. If you are struggling with debt or are considering winding up a solvent company, contact Simple Liquidation for assistance. For more information on how our professional insolvency practitioners may be able to help your business, contact us today.