Following the end of the previous coronavirus loan schemes, the Government launched the new Recovery Loan Scheme (RLS). Assetz Capital were accredited to lend under this scheme on 21st July 2021. Here, we look at its features and eligibility criteria to help you decide whether it’s right for your business or your client.
What is the Recovery Loan Scheme (RLS)?
The Recovery Loan Scheme launched on 6 April 2021 provisionally running until 31st December 2021 (subject to review) and is a government scheme to help small, medium and large UK businesses affected by coronavirus to access finance as they recover and grow. Under the scheme, the Government provides an 80% guarantee to the provider, however, it is important to note that the business remains liable for the full loan amount.
Finance can be used for any legitimate business purpose, such as managing cash flow, investment and growth. It’s designed to support businesses that can afford to take out additional finance for these purposes. Under the scheme, lenders are able to provide facilities of up to £10m to SMEs with a government-backed guarantee against the outstanding balance of the facility.
A key aim of the Recovery Loan Scheme is to improve the terms on offer to businesses, but if a lender can offer a business the choice of a commercial loan on better terms, without requiring the guarantee provided by the RLS, they should do so.
Providers can offer up to £10 million across facilities such as term loans, overdrafts, invoice finance and asset finance. However, it’s important to be aware that a business can only borrow up to 25% of its annual turnover.
Businesses who have taken out a Coronavirus Business Interruption Loan Scheme (CBILS), Coronavirus Large Business Interruption Loan Scheme (CLBILS) or Bounce Back Loan Scheme (BBLS) facility are able to access the new scheme which will run until 31 December 2021, (subject to review).
It’s also important to note that if you are approved for a Recovery loan, you will be liable to pay the RLS interest payments and fees from the outset. The guarantee is to the lender and not to the business.
You could apply for a recovery loan to:
– Access cash flow
– Purchase equipment
– Help with payroll
– Grow your business
– Pay a one-off cost
– Invest in marketing
What are the eligibility criteria?
Businesses will be eligible for a Recovery Loan Scheme back facility if they are trading in the UK, have a minimum of 2 years’ trading and can demonstrate that their business:
– has been impacted by the coronavirus pandemic; and
– is not in collective insolvency proceedings.
The following businesses are not eligible under RLS:
· Banks, Building Societies, Insurers and Reinsurers (excluding Insurance Brokers)
· Public sector bodies
· State-funded primary and secondary schools
How does RLS compare to CBILS?
There are two key differences between the schemes:
· Interest and fees – businesses will have to pay interest (and fees) from day one under the Recovery Loan Scheme because the British Business Bank will no longer pay interest and fees for the first 12 months.
· Loan size – there is no turnover restriction under the Recovery Loan Scheme but the maximum loan amount is now capped at £10m, compared to a maximum of £5m through CBILS.
How much will a Recovery Loan cost?
· The amount your Recovery Loan will cost will depend on the amount of money you want to borrow, your interest rate and your loan term. We charge a one-off completion fee when you take out your loan, and your interest rate will be calculated based on a number of factors, including your credit score and financials for business lending.
· There’s also no fee if you want to settle the loan early. All our loans are fixed-rate, so you’ll know exactly how much you’ll need to repay each month and what the cost of borrowing is.
When was the scheme announced?
Chancellor Rishi Sunak announced the Recovery Loan Scheme as part of the Spring Budget on 3rd March 2021.
What does ‘government guaranteed’ mean?
The Recovery Loan Scheme operates in a similar way to the existing support measures, with the government giving lenders an 80% guarantee. This means that if a business defaults on the loan, the lender can recoup 80% of the outstanding value of the loan from the government. This guarantee gives lenders confidence to lend to businesses.
What are the key features of an Assetz Capital Recovery Loan Scheme backed facility:
· Up to £10m facility per business: The maximum amount of a facility provided under the scheme is £10m per business (maximum £30m per group). Minimum facility sizes vary for each product that Assetz provide through the scheme: Development Finance is available from £1m – £10m & Commercial Mortgages are available from £250k – £10m.
· Term length: Commercial Mortgages are available for up to five years and Development Finance up to 2 years.
· Interest and fees to be paid by the borrower from the outset: Businesses are required to meet the costs of interest payments and any fees associated with the RLS facility.
· Personal Guarantees: Above £250,000 the maximum amount that can be covered under RLS is capped at a maximum of 20% of the outstanding balance of the RLS facility after the proceeds of business assets have been applied. No personal guarantees can be held over Principal Private Residences.
· Guarantee to the Lender: The scheme provides the lender with a government-backed guarantee against the outstanding balance of the facility.
The borrower always remains 100% liable for the debt.
How to apply for a Recovery Loan Scheme backed facility at Assetz Capital?
What we need from you:
When you apply for finance from RLS through Assetz, you’ll need to provide certain evidence to show that you can afford to repay the RLS-backed facility. This is likely to include the following:
· Management accounts
· Business plan
· Historic accounts
· Details of assets
Decision-making on whether a business is eligible for RLS is fully delegated to the British Business Bank’s accredited RLS lenders.
Can I apply for the Recovery Loan Scheme even if I already have a CBILS loan or Bounce Back loan?
Yes, you can get a Recovery loan if you have a Government scheme loan already, and there is no requirement to refinance any existing Government debt such as a Bounce Back loan.
The maximum you can borrow is 25% of your annual turnover, and this cap includes any outstanding debt under the CBILS, CLBILS or RLS schemes. However, Bounce Back loans are not included in this limit. When do you have to start repaying a Recovery Loan?
With a Recovery Loan, your repayments will start straight away. How long you get to repay the loan depends on the type of finance you take out.
For development finance, you have up to 2 years to repay and with commercial mortgages, you have up to 5 years.
What are the interest rates and fees for Recovery Loans?
Assetz Capital set their own rates, Development Finance starts from 6.99% p.a and Commercial Mortgages start from 5.99% pa.
With Recovery loans, you’ll have to pay any fees upfront and you’ll pay your interest yourself from the start.
How do I apply?
You can apply directly on our dedicated landing page on our website here, or you can find out more and discuss the RLS in more detail by calling us on 0800 470 0430 or emailing us at [email protected].