Analysing the Recovery Loan Scheme
The new Recovery Loan Scheme (RLS) launched on 6 April 2021 and runs to 31 December 2021, subject to review. It provides finance that can be used for any legitimate business purpose, including managing cashflow, investment and growth. It is designed to appeal to businesses which can afford to take on additional debt finance for these purposes. Interest rates are capped at 14.99% and are expected to be much lower in most cases.#
The scheme offers term loans, overdrafts, asset and invoice finance. The maximum facility is £10 million per business. The minimum facility varies, starting at £1,000 for asset and invoice finance and £25,001 for term loans and overdrafts. Term loans and asset finance facilities are available for up to six years; overdrafts and invoice for up to three.
No turnover restriction applies. The RLS is open to businesses trading in the UK that can show their business is viable or would be, if it wasn’t for the pandemic; those that are impacted by COVID-19; and businesses not in collective insolvency proceedings. The RLS can be used on top of previous COVID-19 loan schemes, though previous borrowing may restrict the amount available. The scheme is not open to public sector bodies; state-funded primary and secondary schools; or banks, building societies, insurers and reinsurers (insurance brokers are eligible).
The government guarantees the lender 80% of the finance. No personal guarantees will be taken on facilities up to £250,000, and the borrower’s principal private residence cannot be taken as security. Interest and fees will have to be paid from the outset.
Credit checks and fraud checks will be carried out on all applicants. The checks and approach may vary between lenders. When making their assessment, lenders may overlook concerns over short to medium-term business performance caused by the pandemic.