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As businesses seek to re-open and recover from the global pandemic, there are various forms of government support available.
Some of these are available in the form of grants, while others are available as accessible loans.
The Recovery Loan Scheme is open to almost every type of business in the UK and provides funding to help businesses get back on their feet.
Here’s what you need to know.
What Is the Recovery Loan Scheme?
It was intended to replace a number of existing COVID support schemes including the BBLS or Bounceback Loan Scheme, the CBILS which stands for Coronavirus Business Interruption Loan Scheme, and the corresponding CLBILS for ‘large business’.
The scheme opened on 6 April 2021 and is expected to close on 31 December 2021, although this is subject to review.
Any viable UK business can apply for the funding and it can be used for any legitimate business purpose.
However, unlike some of the available government support grants, receiving the payment isn’t a tickbox exercise. There are a number of lenders who are participating in the scheme and each one will have its own specific criteria to be fulfilled.
Who is Eligible for the Recovery Loan Scheme?
All types of businesses are eligible for the Recovery Loan Scheme although individual lenders may restrict the criteria they operate. For example, some may only be willing to consider loans to limited companies or a limited liability partnership. Others may be willing to consider a loan for all types of eligible businesses.
There are some basic criteria that any business that wants to apply must fulfil:
- Be willing able to self-certify that the business has been adversely affected by COVID-19
- Be based in the UK and receive at least 50% of income through trading activity (exemptions apply for charities and further education institutions)
- Be actively trading when the loan is drawn down
- The business must be solvent
- The business must be able to afford to repay the loan
- You must be able to demonstrate that aside from the impact of COVID-19, the business is viable
The Recovery Loan Scheme will require repayments to begin right away, and businesses must have a borrowing requirement that the lender believes to be reasonable.
The only businesses that aren’t eligible to apply for government support under the RLS are banks and building societies, reinsurers, public sector bodies and state-funded primary/secondary schools.
Will Everyone Get Approved for the Recovery Loan Scheme?
There are no guarantees that a business will be approved for borrowing under the Recovery Loan Scheme. A lender can choose to ignore the short to medium term concerns over performance, but they’re not obliged to do so.
Lenders will carry out the usual fraud and credit checks on any business that applies for a loan. The borrowing proposal from the business must be affordable and reasonable.
Every lender will have their own specific scoring and criteria for granting the loan, there is government support to the lender for offering this specific finance. For loans up to £250,000, there is an 80% guarantee from the government; this means if you default, the lender can recoup 80% of the outstanding balance.
For any amount over £250,000, the government only offers a 20% guarantee.
For finance of less than £250,000, no personal guarantees are required but for larger sums, the lender may request a personal guarantee. A lender cannot use a personal guarantee over any principle private residence.
These guarantees mean that lenders may be more willing to provide a business loan, but they’re not obliged to do so. They can offer one of their regular business loan products if you qualify and it’s more suitable.
If one lender rejects your application you may still be approved by another of the accredited lenders.
How Much Could I Receive?
The RLS isn’t a single product scheme; it’s a type of COVID support that encompasses a wide range of different types of finance and borrowing. This could include invoice finance, overdrafts, loans and asset finance. Asset finance and loans are available with a six-year repayment period while overdrafts and invoice finance are available over three years.
Not all types of finance are available from every lender.
For invoice and asset finance, the minimum loan amount is £1,000 while for loans and overdrafts, the minimum amount is £25,001.
The maximum amount a business can receive is the lesser of £30 million and:
- Double the 2019 business wage bill (or the last year available)
- 25% of the 2019 turnover
- Liquidity needs for 12 months (large businesses) or for 18 months (SMEs)
There is also a maximum of £30 million per borrower group. Any existing CBILS or CLBILS will count towards the limit.
I’ve Already Had Government Support - Am I Still Eligible?
Some businesses may have already received support via the BBLS, CBILS or CLBILS but this won’t exclude them from applying for the Recovery Loan Scheme. Providing the total amount remains within the allowable limits, and the loan is affordable, a business may still apply.
How Do I Apply for the Recovery Loan Scheme?
There are many different lenders who are participating in the scheme and these are all listed on British Bank.
It’s advisable to apply to your own bank or lender first, but if they don’t offer the facility you need, you can apply elsewhere. You don’t need to be a customer to apply for the Recovery Loan Scheme.
Approvals and rates are all delegated to the lender so terms may vary from one lender to the next.
Once you’ve chosen a lender from the list, proceed to their website to submit your application. The documents you need to submit will depend on the lender but will commonly include:
- Details of assets
- Business plan
- Historic accounts
- Management accounts
These will form part of the checks the lender carries out to ascertain if the proposal is affordable and viable.