In the Chancellor’s Budget last month, he announced a follow up lending scheme to CBILS. The Recovery Loan Scheme (RLS) is a new funding opportunity for businesses to use as they recover and start to grow as we make our way out of the pandemic. It’s scheduled to run until 31 December 2021 but is subject to review.
According to the British Business Bank’s Small Business Finance Markets report, nearly half of UK SMEs (45%) applied for external financial support in 2020. In 2019, just 13% applied. With the government providing an 80% guarantee and covering the interest and fees on all CBILS facilities, it’s understandable why so many businesses wanted to make the most of it.
The suite of government business support schemes, from Bounce Back Loans to the Future Fund, delivered over £75 billion of funding to 1.6 million small and medium sized businesses in 2020. CBILS made up nearly £24 billion worth of approved facilities. Judging by our own experience seeing an uptick in applications in the final weeks of the Scheme being available, we can expect the final figure to be much higher.
Where CBILS was designed to help businesses who had been affected by the pandemic in some way, the RLS is more focused on helping them recover. As such it’s designed to help businesses who were affected by a year of restrictions but have a clear chance of long-term survival with the right finance in place. This is to support economic recovery as vaccine rates increase further and life begins to return to normal.
1. Can I combine CBILS with RLS? You can apply for RLS if you have any existing government support facility, including CBILS. However, unlike with CBILS, you won’t have to use the funds to refinance any existing facilities. If you do want to use it to refinance a CBILS loan, you can focus it on internal debt rather than the whole facility.
2. What businesses are eligible? There are no turnover restrictions under RLS. As with CBILS, you do need to self-certify that you’ve been impacted by Covid (e.g. lost revenue or impacted cash flow), but the focus is on supporting viable growth rather than repairing damage. This can be interpreted widely enough that most businesses should be eligible to apply.
3. What kinds of facilities will be available? Under the scheme, term loans, overdrafts, asset finance and invoice finance facilities will be available from different lenders.
4. What facility sizes are available? The RLS is less restrictive in this area. Facility sizes will start at £1,000 for invoice finance and asset finance, and from £25,001 for loans or overdrafts. The maximum facility is higher than CBILS, at £10 million. If your business is part of a group of companies then the maximum size across the group is £30 million.
5. What percentage is backed by the Government? Just like CBILS, 80% of the facility will be guaranteed by the Government. The idea is to encourage more lending for small businesses by giving lenders more freedom to help those who may have been ignored.
6. What about fees and interest? These won’t be covered by the Government under the RLS. You’ll need to pay any interest, fees and associated costs for any RLS facility you’re using. However, upfront fees cannot be higher than 5% of the facility amount. The Government wants borrowers to enjoy the full economic benefit of the Government guarantee, so there’s an expectation that pricing will be lower than it would be normally. Crucially, a lender can only offer an RLS facility if they wouldn’t have without the guarantee or if they would’ve only offered it at a higher cost to the borrower.
7. Will I need a Personal Guarantee? There’s no Personal Guarantee required for any facility under £250k. However, above that it’s capped at 20% of the outstanding balance of all guaranteed facilities after all other security has been applied.
8. What term lengths are available through the scheme? Like CBILS, the minimum length is 3 months for any facility. Term loans and asset finance can go up to 6 years, but invoice finance and revolving credit facilities can only be a maximum of 3 years. There’s a chance you could extend this to 10 year in some cases, but it’s rare.
9. What data will be used to assess my application? Every business that applies for the Scheme will undergo a credit check and fraud check. Lenders are allowed to overlook short and medium-term performance because of the impact of the pandemic.
10. How long will RLS be around for? Currently it’s running from 6 April until 31 December 2021. Bear in mind that CBILS was extended three times, so we can’t say for sure.
With the vaccination scheme rolling out and restrictions relaxing, the current economic forecast is positive. An RLS facility is designed to be used for any legitimate business purpose to help you rebuild and strengthen your business as we get through the pandemic. This could be managing cash flow, as part of your investment in the business and to fund growth. In essence, it’s another opportunity for businesses that have been affected by the pandemic to find their way out of it by accessing funding.