UNDERSTANDING THE RECOVERY LOAN SCHEME
Recovery Loan Scheme (RLS)
The Recovery Loan Scheme was launched on the 6th April 2021 to provide financial support to businesses across the UK as they recover and grow following
the coronavirus pandemic.
Previous schemes have had defined criteria around the size of the business applying, along with different amounts of borrowing available depending on the size of
your business. RLS will be one offering for businesses of all sizes and life stages.
Features of this scheme will include:-
Up to £10m facility per business: The maximum value of a facility provided under the scheme will be £10m per business. Minimum facility sizes vary, starting at £1,000 for asset and invoice finance, and £25,001 for term loans and overdrafts.
Turnover limit: There will be no turnover restriction for businesses accessing the scheme.
Wide range of products: Businesses will be able to choose from a variety of products: term loans, overdrafts, asset finance and invoice finance facilities.
What can the loan be used for?: The RLS can be used for many purposes including Refinancing of existing loans including government backed loans, growth, expansion, MBO’s, MBI’s.
Term length: Term loans and asset finance facilities are available for up to six years, with overdrafts and invoice finance available for up to three years.
Interest and fees to be paid by the business from the outset: Businesses will be required to meet the costs of interest payments and any fees associated with the facility.
Access to multiple schemes: Businesses who have taken out a CBILS, CLBILS or BBLS facility will be able to access the new scheme, although the maximum they are allowed to borrow will depend on their lender’s assessment and affordability.
Credit checks for all applicants: Lenders will be required to undertake credit and fraud checks for all applicants. 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.
Should I Take Out a Business Loan?
This is an excellent question to ask once you've considered the above information.
A note from Market Finance on business loans says, "A MarketFinance survey of 5,000 SMEs found that only 52% are considering taking advantage of the CBILS. When asked why this is, 67% said they already had an existing loan. The majority of these SMEs (36%) said their biggest concern was taking on additional repayments, given the current economic climate."
There are some additional thoughts to consider before applying:
For service-based businesses or those with a short shelf life, can you viably make up the shortfall from COVID plus additional loan amounts in the foreseeable future?
A comment from Bytestart notes, “It is important to understand this notion. Incurring and paying costs for any other reason than to merely keep the business alive or advance some strategic priority, the company would otherwise pursue regardless of COVID-19 with CBILS loans is a risky idea."
While you are building your business back up having taken a loan for, say £250,000, can you feasibly afford to lose a further£50,000 per year in cash-flow while you repay your loan?
The interest on the loan can be paid back with pre-tax earnings, but the capital amount will come off your post-tax income.
There is no guarantee when the COVID crisis will end. How long will your business be able to stay afloat in the current economic system with an additional outgoing cost of a loan repayment?
We understand that there are multiple factors to consider when taking out a business loan and that you have many lenders to choose from.
During your research you will find that various lenders will have their own idiosyncrasies and requirements for their CBILS offerings - some of which will work for you and some that won't.
If you have been turned down by one lender, you are free to approach another if you feel that your case has merit.
A 'no' from one institution is not a hard 'no' forever.