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RLS – Recovery Loan Scheme

The Government has announced that a new iteration of the Recovery Loan Scheme (RLS), designed to support access to finance for UK businesses as they look to invest and grow, will launch in August 2022.

The new scheme is designed to help businesses affected by Covid-19 recover and grow post-pandemic and can be used for any legitimate business purpose, including managing cash flow, investment, and growth.

The British Business Bank says the Recovery Loan Scheme aims to improve the terms on offer to borrowers. But if a lender can offer a commercial loan on better terms, they will do so.

What is the Recovery Loan Scheme

As part of HM Treasury’s efforts to Build Back Better, British Business Bank has again been tasked with sustaining the roll-out of critical business funding. The consolidation of existing loan arrangements into a single Recovery Loan Scheme (RLS) signals a desire to release many enterprises from long-term state dependency. The previous schemes had defined criteria around the size of the business applying, along with different amounts of borrowing available depending on its scale. The RLS will be a single offering for businesses of all sizes and life stages.

The new scheme will support borrowing of up to £2 million per business group, and can be used for business purposes including managing cash flow, investment, and growth.

It is designed to appeal to businesses that can afford to take out additional finance, providing them with continued support as they steer a path towards a sustainable recovery. Like CBILS – the Recovery Loan Scheme’s predecessor – borrowers can choose from term loans, overdrafts, asset finance, and invoice finance, and we expect there will be a large number of participating lenders.

Key Features

Up to £2 million facility per business group

The maximum amount of a facility provided under the scheme is £2 million per business group. Minimum facility sizes vary, starting at £1,000 for asset and invoice finance, and £25,001 for term loans and overdrafts.

Wide range of products

Businesses can continue to choose from term loans, overdrafts, asset finance and invoice finance. Not all lenders will be able to offer all products.

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.

Access to multiple schemes

Businesses that took out a CBILS, CLBILS, BBLS or RLS facility before 30 June 2022 are not prevented from accessing RLS from August 2022.

Pricing

The annual effective rate of interest and upfront and other fees cannot be more than 14.99%.

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.

Guarantee is to the lender

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.

Decision-making delegated to the lender

Recovery Loan Scheme-backed facilities are provided at the discretion of the lender. Lenders are required to undertake their standard credit and fraud checks for all applicants.

Eligibility Criteria Include

Turnover limit

The scheme will be open to smaller businesses with a turnover of up to £45 million.

UK-based

The borrower must be carrying out trading activity in the UK.

No COVID-19 impact test required

Unlike the previous iteration of the scheme, for most borrowers there is no requirement to confirm they have been affected by COVID-19.

Viability test

The lender will consider that the borrower has a viable business proposition but may disregard any concerns over its short-to-medium term business performance due to the uncertainty and impact of COVID-19.

Business in difficulty

The borrower must not be a business in difficulty, including not being in collective insolvency proceedings.

In more detail – CBILS and RLS comparison


Feature CBILS RLS
Scheme duration The initial six-month duration was extended three times – the scheme closed on the 31st March 2021 Initially, the scheme has a nine-month duration (6th April to 31st December 2021). There will likely be a review in the autumn to determine if/how the scheme will be extended or amended
Facilities
  • Term loans
  • Overdrafts
  • Asset finance
  • Invoice finance
  • Term loans
  • Overdrafts
  • Asset finance
  • Invoice finance
  • Facility size
  • £50,001 – £5 million (loans and overdrafts)
  • £1,000 – £5 million (asset and invoice finance)
  • £25,001 – £10 million (loans and overdrafts)
  • £1,000 – £10 million (asset and invoice finance)
  • Borrower size SMEs only (turnover less than £45 million) No turnover limit
    Maximum amount per borrower Maximum amount per borrower limited to the lesser of:
  • £5 million – or one of:
    • Double a businesses’ wage bill in 2019
    • 25% of turnover in 2019
    • Justified liquidity needs for the next 18 months
    Maximum amount per borrower limited to the lesser of:
  • £10 million – or one of
    • Double a businesses’ wage bill for 2019 or the latest available year
    • 25% of 2019 turnover
    • Justified liquidity needs for the next 18 months
    Maximum amount per group limited to £30 million
    Lender guarantee coverage 80% 80%
    Business Interruption Payment (BIP) First year’s interest and fees paid by the Government n/a
    Facility tenure Minimum three months, maximum of:
  • Six years (TL, AF)
  • Three years (IF, RCF)
  • In certain forbearance situations there is the ability to extend up to 10 years
    Minimum three months, maximum of:
  • Six years (TL, AF)
  • Three years (IF, RCF)
  • In certain forbearance situations there is the ability to extend up to 10 years
    Additionality n/a The lender can only provide a facility if:
  • They would not have been prepared to offer a Commercial Facility for the same amount on similar terms; or
  • They would only have been prepared to offer a Commercial Facility on similar terms at a higher price
  • Refinancing 20% of total portfolio, not including BBLS or smaller scheme facilities 20% of the total portfolio, not including refinancing a CLBILS, CBILS or BBLS facility.
    Refinancing will only consist of the actual internal debt being refinanced, as opposed to the whole facility, which was the case under CBILS
    Use of multiple schemes CBILS borrowers could not use BBLS, unless the new scheme facility refinances the whole of the existing facility Borrower may have other facilities supported by BBLS or CBILS/CLBILS, and may not be required to refinance them
    Subsidy regime EU Temporary Framework for state aid Domestic subsidy regime, except for those businesses captured by the ‘Northern Ireland Protocol’ accompanying the UK-EU trade agreement – for whom EU state aid rules will still apply
    Guarantee level (Invoice finance variant only) Maximum of 30% of Gross Book Debt as a Top-Up Facility and established as a percentage of Gross Book Debt Lender chooses whether the guarantee covers all or part of the facility limit. This is a £ guarantee (not a %). Once established, it remains a fixed £ value for the tenure of the guarantee. The guarantee must not exceed the facility limit
    Facility limit (Invoice finance variant only) Maximum of 30% of Gross Book Debt Up to the facility limit. The facility limit can be increased to accommodate some extraordinary events but cannot include inter-company debt, aged debtors, and disputed debt

    Who is eligible?

    As the Recovery Loan Scheme is intended to aid the recovery of all UK businesses, across all sectors, recover and grow this year.

    It has to be expected that the pandemic and measures taken by the Government will have had a negative impact on businesses. It is anticipated that where poorer financial performance is due to Covid-19 that accredited lenders will overlook what might otherwise be normal concerns about the short to medium-term performance of the applying business.

    But it is inevitable that the approach taken by accredited lenders will vary subject to their respective credit policies and criteria. The new scheme will almost certainly provide accredited lenders enough flexibility to impose their own requirements, particularly as they aim to mitigate and balance risk across their portfolios.

    How do I apply image

    Looking for a recovery loan scheme loan?

    As with the CBILS scheme, the lending will be provided by accredited lenders and will encompass loans, asset finance, invoice finance, overdraft, and property lending.

    If you are looking to take out a loan using the Recovery Loan Scheme and need some advice, please don’t hesitate to contact us.

    Apply for loan scheme