Beyond the balance sheet

The Recovery Loan Scheme (RLS) and how it can help small businesses

Tom Walker 28/4/2021 3 minute read

Tom Walker ACA, explains how the latest government scheme works to help businesses during COVID-19.

The government has launched another COVID-19 initiative to help organisations through the pandemic. The Recovery Loan Scheme (RLS) replaces all the plans unveiled a year ago and will be available until at least 31 December 2021. In this blog post explain everything you need to know.

Unsure if you can access the Recovery Loan Scheme? Get in touch >

How the RLS works

The RLS has been set up to meet the needs of businesses of all sizes which means this scheme replaces 3 previous ones, namely:

Businesses of any turnover size can borrow up to £10m through a RLS loan that can be repaid over 6 years. This loan term means this scheme is less generous than the previous support initiatives. It works whereby the state guarantees up to 80% of the loan which reduces the risk to banks and lenders ensuring they can distribute more loans at competitive terms.

Whilst government backed, the onus remains on you to repay the loan in full, you're liable for the debt. You can set the borrowing up through either:

  • A conventional bank loan
  • An overdraft
  • An asset-finance arrangement
  • An invoice-finance arrangement.

If you've borrowed through any of the previous schemes, you can still apply for further finance through the RLS. Of note, the amount you've borrowed under one of the existing schemes could limit the amount you can borrow through the RLS. You don't need to be an existing customer of the RLS approved lenders to apply for lending.

The advantage of the RLS compared to other funding options is that you can make use the finance as you see fit as long as it is for legitimate business purposes. There is no restrictive criteria regarding usage. To qualify, you must be able to prove that your business has been negatively impacted by Covid-19. This could mean:

  • A significant fall in sales and trade
  • The inability to trade due to lockdown restrictions

How the RLS is set up

The government is not covering the fees to set up the finance or interest charges as they did with previous support schemes. Banks accredited by the British Business Bank are issuing the finance, and they will set the terms of the loans. You can find a list of accredited lenders here.

In exchange for the support, the government has informed lenders that they need to issue the finance in a manner that reflects the economic benefit of their guarantee. This means lenders can't request personal guarantees from company directors on loans of less than £250,000. If the loan amount is greater than £250,000 then it is down to the discretion of the lender as to whether they require a personal guarantee.

Given the loans are issued over a 6 year repayment terms, the reality for many businesses is they will be more expensive than the previous support initiatives which were based on 10 year terms. Consequently monthly repayments will likely be higher.

Review your options before committing to the RLS

If you're the owner manager of a small business then it would be worth reviewing the market to ascertain if you can secure a better deal through financial lending products that aren't backed by the government. As MoneyWeek notes, the British Business Bank’s Start Up Loans scheme provides lending up to £25,000 for businesses at a fixed rate of 6% if they are in their first 2 years of trading.

To find our more details about the RLS scheme, visit the British Business Bank.

Professional, business advice to assist your business through the COVID-19 downturn

The content of this post was created on 28/04/2021.
Please be aware that information provided by this blog is subject to regular legal and regulatory change. We recommend that you do not take any information held within our website or guides (eBooks) as a definitive guide to the law on the relevant matter being discussed. We suggest your course of action should be to seek legal or professional advice where necessary rather than relying on the content supplied by the author(s) of this blog.



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