The Recovery Loan Scheme: how recovery loans can help your clients
Helping your business clients survive the past 12 months hasn’t exactly been a walk in the park. The negative impacts of the COVID-19 pandemic and the aftermath of Brexit have left many UK businesses in a complicated financial situation. Revenues are down, cash flow is poor and working capital is in short supply. So, it’s excellent news that the Government has introduced the new Recovery Loan Scheme – with the aim of driving the recovery of the UK economy.
Viable UK businesses can now apply for up to £10 million in funding through the scheme. This provides a potential lifeline for many cash-poor businesses. Various routes to finance are available with funding offered on extremely favourable terms.
But how can a recovery loan be used to add the most value for your clients? And how do you decide which clients would benefit most from this additional funding channel? Let’s take a look.
The Recovery Loan Scheme (RLS) is a new government-backed scheme offering between £1,000 and £10 million in finance to UK registered companies. It’s designed to help businesses who have been impacted by the pandemic get back on their feets as the economy starts to recover too.
The scheme was introduced on6 April 2021 and is planned to run until 31 December 2021. It replaces the now closed Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS). This makes RLS the go-to route for clients who need to stabilise and grow their business.
Term loans, overdrafts, invoice finance or asset finance are all offered under the scheme. The amounts that can be borrowed depend on the product being used.
- Term loans or overdraft – businesses can borrow between £25,001 and £10 million
- Invoice finance or asset finance – businesses can borrow between £1,000 and £10 million
Not all of your clients will be eligible for RLS. To begin with, any interested clients will need to be a UK registered company to qualify for the scheme. However, unlike with CBILS and BBLS, there are no turnover restrictions.
The scheme is open to most industries, however there are exceptions. UK-based banks, building societies, insurers and reinsurers, public-sector bodies or state-funded primary and secondary schools can’t apply. And, as with the CBIL and BBL schemes, there are certain conditions that a business must meet before a recovery loan application can be started.
The client must be able to show that their business:
- is viable or would be viable were it not for the pandemic
- has been impacted by the coronavirus pandemic
- is not in collective insolvency proceedings
Meeting these criteria is somewhat subjective – the meaning of ‘viable’ in this context is open to debate. But this is a golden opportunity for clients to boost working capital and invest in their long-term stability and growth.
Most businesses will benefit from a cash injection. But to maximise the value of a recovery loan, you need to think carefully about each client’s specific situation.
What is the client’s current financial position? How badly were they affected by lockdown? What plans do they have for the future? All of these questions (and more) need to be addressed in order to help business owners make the right decisions about their recovery.
As a starting point, take time to review your client portfolio. Look at their financial metrics and think back to the conversations you’ve had with those clients about pinch points and concerns. With this information front of mind, you can easily identify the clients that would most benefit from additional finance.
Focus your efforts on:
- Clients that are currently cash-poor due to COVID-19 – for businesses that have been hardest hit by the pandemic, there will be an overwhelming need for extra cash. A recovery loan will help to build up their cash reserves, and will enhance their working capital. With more liquidity in the business, clients can open up their operations, fund their initial expenditure and start a meaningful recovery.
- Clients whose cash is tied up – in the current economic situation, some businesses will be hindered by unpaid invoices and bad debt on their balance sheet. Taking out a recovery loan will allow them to fill this cash flow gap in the short-term. It buys them time while they wait for their debtors to settle these outstanding debts.
- Clients that have pivoted or diversified during lockdown – if the client’s business purpose has changed over the course of the pandemic, cash might be needed to fund this diversification. For example, a coffee shop may have decided to purchase a mobile coffee van during lockdown. A recovery loan will help to repay that investment and also replenish the company’s cash reserves.
- Clients that are planning to buy new equipment – if a client has plans for a significant asset purchase, a recovery loan could be the ideal route to finance this. When new equipment, plant or technology is needed, taking out asset finance via the RLS is a sensible step. The favourable interest and personal guarantee terms make it easier for clients to buy the asset and start seeing the benefits.
- Clients that intend to scale up and grow – some clients may have weathered lockdown well, and will already be in a position to think about growth. Taking out a recovery loan will help them to access the required growth funding on terms that are unlikely to be available at any other point in time. The fact that a recovery loan is interest-free for the first 12 months makes this scheme extremely attractive for most owners.
Given the unpredictable nature of the business market, the RLS may well be a game-changer for many of your business clients. Where there’s a pressing need for funding, there’s unlikely to be a more attractive option for taking out additional finance.
A range of banks, finance providers and lenders have now been approved to offer recovery loans via RLS. At MarketFinance, we're excited to be helping UK businesses kickstart their post-pandemic growth. Sign up here to be the first to know how we can help your clients recover.