The second Recovery Loan Scheme - PKF Francis Clark
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The second Recovery Loan Scheme

by Adam Keelty

British Business Bank recently sent out an email titled “New iteration of Recovery Loan Scheme announced today”, an announcement that had been heavily rumoured.

On further reading it was apparent the accompanying article was focused on lending through the now closed Recovery Loan Scheme (closed as at 30 June 2022), but with a segment of text announcing the “new iteration” as follows: “The Government announced today that there will be a new iteration of the Recovery Loan Scheme, which will open for applications in August 2022. Further details will follow when the scheme goes live”.

RLS2 – what we know

From the press release on the gov.uk website, the second iteration of the Recovery Loan Scheme (RLS2) is considered an extension of the initial scheme, offering government-backed loans to small businesses for a further two years to provide further support for businesses grappling with cost pressures. Specifically, we know that:

  • The Government will underwrite 70% of lender liabilities, at the individual borrower level, in return for a lender fee
  • The borrower remains 100% liable for the debt
  • Lenders must ensure that the benefits of the government guarantee are passed through to businesses
  • The maximum loan size remains at up to £2m
  • Lenders may now require a personal guarantee from the borrower, in line with standard commercial practice

More has been said about the scheme in the press but at this stage we would assume that this is mainly conjecture based on the previous iteration as no more details have been announced. However, the Daily Telegraph would appear to have access to a “Whitehall source” so it may be the case that:

  • “The loan guarantee scheme, dubbed by insiders as RLS2, will be less generous than its predecessor but aims to provide up to £3bn a year over at least two years”
  • “The new scheme is designed to be longer lasting after several iterations of business loans support since the pandemic hit”

We can also safely surmise that RLS2 will be utilised by accredited lenders and, whilst we can assume that these lenders will be the same as were accredited for the initial Recovery Loan Scheme, new accreditation might be required. We will update this blog as we find out more.

RLS1 – concluding comments

Two headlines to note from the wrap up of the initial Recovery Loan Scheme (RLS1):

  • £4.51bn of total funding was offered across the UK through 20,643 facilities, of which £3.83bn has been drawn down through 18,338 facilities
  • £301.9m of total funding was offered in the south-west through 1,678 facilities, of which £250.4m has been drawn down through 1,544 facilities. Total funding offered from the scheme represents 7% of the national total, slightly below the relative size of the region’s business population (9% per the British Business Bank).

RLS2 – demand and supply considerations

We have been having discussions with clients about potential cash flow needs across the next 6 to 12 months and beyond which cover the fact that, for example, the Government has been urged by the ICAEW and business groups to consider a revised version of the Recovery Loan Scheme following concerns about the detrimental impact of geopolitical and macroeconomic factors on UK businesses. Based on the current narrative around RSL2, it appears this has been heard.

Time will tell what the demand for the product is, given increased interest rates and the potential for a personal guarantee to be required. For instance, the Enterprise Finance Guarantee (EFG) scheme – launched in 2009 to provide financing to small UK businesses – had take up issues due to the need for a personal guarantee. However, currently a significant number of businesses have Coronavirus Business Interruption Loans (CBILS),  so refinancing via RLS2 might be more attractive.

There are also question marks on the supply side in terms of what position lenders take in assessing propositions put to them – it may, for instance, prove challenging for banks to extend further loans through use of RLS2 where customers are outside of normal banking terms.

PKF Francis Clark

We are working with clients on cash flow forecasts as part of ongoing business planning and we are including in these forecasts the modelling of increased costs of some raw materials / goods and working capital requirements arising from supply chain issues. We also anticipate working with businesses on applications for RLS2 backed funds, perhaps more so than for RLS1 due to lack of other government measures (that have assisted many through the period of RLS1) and the pressures on profit and cash resulting from the detrimental impact of geopolitical and macroeconomic factors.

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