Recovery Loan Scheme – more details

Following on from a previous blog announcing a new round of Recovery Loan Scheme we now have more details to share with you.

The Recovery Loan Scheme

As a reminder the Recovery Loan Scheme was and is essentially a government initiative to encourage lenders to advance funds to businesses in situations where a lender is made comfortable to lend knowing that a % (now 70%) of the lend is underwritten by the UK government. There is no direct engagement between a business and the UK Government (or the body administering the Recovery Loan Scheme, the British Business Bank).  The products underpinned by government guarantee are available from Accredited Lenders.

Key features of the scheme

Maximum facility	£2m for UK businesses unless lower cap applies as: ·         Inside scope of NI protocol ·         Operate in specific sectors including: agriculture, fisheries / aquaculture, and road freight haulage
Use of funds	“An RLS facility can be used for any legitimate business purpose including, but not limited to, managing cashflow, or investment and growth purposes”.  We have also had confirmation that RLS can potentially be used for refinancing of existing debt facilities.
Restriction on use of funds include	·         Run an advertising campaign outside the UK ·         Manufacture a product which is only available to customers in a market outside the UK ·         Establish a representative office outside the UK or appoint an agent outside the UK ·         Set up or operate a distribution network outside the UK, or ·         Fulfil a direct export order.
Products supported	Term loans, overdrafts, asset finance and invoice finance facilities
Term length	Term loans and asset finance facilities are available from three months up to six years, with overdrafts and invoice finance available from three months up to three years.
Personal Guarantees	Personal guarantees can be taken at the lender’s discretion, in line with their normal commercial lending practices. Principal Private Residences cannot be taken as security within the Scheme.
Borrower’s liability	The scheme provides the lender with a 70% government-backed guarantee against the outstanding balance of the facility after it has completed its normal recovery process. The borrower always remains 100% liable for the debt.
Eligibility criteria, include:	·         Group turnover < £45m ·         UK based ·         Trading company
Subsidy limits	Borrowers will need to provide written confirmation that receipt of the RLS facility will not mean that the business exceeds the maximum amount of subsidy they are allowed to receive. All borrowers in receipt of a subsidy from a publicly funded programme should be provided with a written statement, confirming the level and type of aid received
Decision to lend	The lender will assess your application.
Viability	See below

The information is taken from British Business Bank’s webpage on the Recovery Loan Scheme.

Application process

As noted above, and consistent with CBILS, BBL and previous iterations of Recovery Loan Scheme, your application is made to one the Accredited Lenders who can access the government’s guarantee.  So far (as of21 August 2022) 8 lenders are shown as accredited under this iteration of Recovery Loan Scheme.  I would expect more to be added in the coming weeks.

One of key aspects you will need to demonstrate in your application is that the business is ‘viable’.

As stated on the FAQ webpage for Recovery Loan Scheme:  ‘A lender must consider your business to be viable, and, in making their assessment of your borrowing proposal, they may disregard any concerns they have over your short-to-medium term business performance arising from Covid-19. However, lenders are not required to overlook these concerns and final lending decisions rest with the lender’.

Information listed by the British Business Bank as evidential to show that you can afford to repay the facility includes the following:

• Management accounts
• Business plan
• Historic accounts

Is this phase 2 or phase 3 of Recovery Loan Scheme?

This iteration is in fact phase 3 – as phase 2 ran from 1 January 2022 to 30 June 2022.  Anyone wanting the see the differences between the 3 phases can look at table ‘Comparison to previous schemes’ on FAQ webpage.

PKF Francis Clark

As my colleague Adam has already eluded to we anticipate more of our clients to engage with us to assist with “business plans” (financial projections) to assist with applications to this iteration of Recovery Loan Scheme than the previous two – whilst this has not been borne out yet it is early days.

If you wish to discuss us assisting your business with a Recovery Loan Scheme application, please contact me or your usual contact within PKF Francis Clark