With lockdown being cautiously eased, many businesses are looking forward to reopening, especially those in the retail and hospitality sectors. However, many of these have been closed, or at least operating on a restricted basis, for the past thirteen months and will find reopening difficult.
However, a new wave of government support for businesses started on 6th April, under the Recovery Loan Scheme (RLS).
One Scheme Has Ended and Another Begun
During 2020, the government introduced various schemes to support businesses struggling in lockdown. The bounce-back loan scheme (BBLS) provided cheap loans for any business that could show they’d suffered from the pandemic, while the coronavirus business interruption loans scheme (CBILS) offered a range of support to SMEs.
These ended on 31st March, but the Chancellor had already announced in his budget a replacement in the form of a Recovery Loan Scheme. This has now come into force.
What Does the Recovery Loan Scheme Offer?
The main offer of the RLS is a range of business loans, available from eighteen accredited lenders and 80% backed by the government. This means that, if the borrower should default on the repayments, the government will reimburse 80% of the shortfall to the lender.
This makes it very attractive for the lenders to offer these loans, as their risk is very low. The maximum rate for the scheme is 14.9%, but the Treasury is encouraging lenders set rates considerably lower, in order to help protect jobs.
Various offers are available, with a minimum borrowing of £25,001 and a maximum of £10 million. Repayment rates range from three to six years, with the business undertaking to repay the full loan plus interest.
Along with loans, the RLS also offers invoice and asset financing from £1,000 and revolving door credit, lasting from three months to three years.
How to Access the Recovery Loan Scheme
Any business that has been negatively affected by the Covid-19 pandemic can apply directly to one of the accredited lenders. Lenders will decide whether the business is eligible and undertake standard checks, but they’re likely to be more tolerant than normal to short-term poor performance. Applicants will need to present a viable business plan, as well as management accounts.
If you’re applying for a loan of less than £250,000, you won’t need to provide any personal guarantee. For higher sums, however, the British Business Bank specifies that “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.”
As with any type of loan, of course, it’s vital to make sure you’re not digging yourself into even more trouble by borrowing. You’re very welcome to give me a call and have a chat about issues around debt.