This article was originally published in the Western Morning News on Wednesday 24 March 2021. I have been asked by many clients and fellow professionals, what…
Launched today (6 April), the Recovery Loan Scheme (RLS) ‘provides financial support to businesses across the UK as they recover and grow following the coronavirus pandemic’.
Information on the RLS can be found at British Business Bank webpage. Some key points are summarised below.
What is the RLS?
The RLS is similar in construct to the Coronavirus Loan Schemes (Bounce Back Loan Scheme, CBILS and CLBILS) in that it is a scheme that gives the [accredited] lender a government-backed guarantee against [80%] the outstanding balance of the facility.
“It is designed to appeal to businesses that can afford to take out additional debt finance and can be used for any legitimate business purpose, including managing cashflow, investment and growth”
“A key aim of the Recovery Loan Scheme is to improve the terms on offer to you, but if a lender can offer you the choice of a commercial loan on better terms, without requiring the guarantee provided by the RLS, they should do so.”
The scheme went live on 6 April and is open until 31 December 2021, subject to review.
Finance/ facilities supported through the RLS
Key features of facilities supported by the RLS include:
|Size, type and term of facility||• The maximum amount of a facility provided under the scheme is £10m per business (maximum £30m per group) – see further below.
• Minimum facility sizes vary, starting at £1,000 for asset and invoice finance, and £25,001 for term loans and overdrafts
• For term loans and asset finance facilities: from three months up to six years.
• For overdrafts and invoice finance facilities: from three months up to three years
• The exact terms of each facility will be determined by your lender and will depend on the circumstances of your borrowing proposal
|PGs||• Personal guarantees are not permitted for facilities of £250,000 or less.
• Above £250,000 the maximum amount that can be covered under RLS is capped at a maximum of 20% of the outstanding balance of the RLS facility after the proceeds of business assets have been applied.
• No personal guarantees can be held over Principal Private Residences
|Interest and fees||• Interest and fees to be paid by the business from the outset
• Businesses are required to meet the costs of interest payments and any fees associated with the RLS facility
• The annual effective rate of interest, upfront fee and other fees cannot be more than 14.99%
|Interaction with BBLS etc||• Businesses that have taken out a CBILS, CLBILS or BBLS facility are able to access the new scheme, although the amount they have borrowed under an existing scheme may in certain circumstances limit the amount they may borrow under RLS (see below)
• RLS can be used to refinance BBLS/CBILS/CLBILS facility, in part or in full
In terms of size of facility the FAQs for the scheme state that the maximum value of a facility per business is the lesser of:
- £10m; or
- double the businesses wage bill for 2019 or last year available
- 25% of the applicant’s turnover in 2019, or
- the applicant’s liquidity needs for the coming 12 months (for large enterprises) or 18 months (for SMEs)
If a business, or any of its linked or partner enterprises (including private equity and venture capital linked enterprises), have borrowed under CBILS or CLBILS then this will count towards a business’ maximum amount
Your business must:
- have been impacted by Covid-19 – you will need to confirm to the lender that you have been impacted by the coronavirus pandemic
- be carrying out trading activity in the UK
- have a viable business proposition – your lender may disregard (at its discretion) any concerns over short-term to medium-term business performance due to the uncertainty and impact of Covid-19
There is no turnover restriction for businesses accessing the scheme.
To assess (3) above, and specifically to show that you can afford to repay the RLS-backed facility, the British Business Bank state you’ll need to provide certain evidence, and this is likely to include the following:
- Management accounts
- Business plan
- Historic accounts
- Details of assets
Decision-making on whether a business is eligible for RLS is fully delegated to the British Business Bank’s accredited RLS lenders (see further below).
When making their assessment, lenders may overlook concerns over short-to-medium term performance owing to the pandemic. The checks and approach may vary between lenders.
Accredited Lenders and application process
The Recovery Loan Scheme will initially be available through a number of lenders accredited by the British Business Bank. New lenders under the scheme will be listed on the British Business Bank website as they become accredited.
When looking to borrow, the British Business Bank advise “you should first approach your own finance provider – ideally via its website. You may also consider approaching other lenders if you’re unable to access the finance you need.”
PKF Francis Clark
We will be modifying the template we used for CBILS for RLS applications and hope to have this available in due course to share with businesses looking to make a RLS application.
We anticipate working with a number of our clients to make applications to this scheme, particularly those with robust growth aspirations but a lack of available security.
We will look to keep this blog up to date with relevant updates about RLS as we find out more through going through the application process with our clients.