At the Autumn Budget the Chancellor Rishi Sunak announced that the Recovery Loan Scheme (RLS) would be extended for a further 6 months until 30 June 2022 but also implemented changes to the scheme restricting eligibility and the amount of finance that will apply to all offers made from 1 January 2022.
The Recovery Loan Scheme (RLS) opened on the 6th April 2021 and replaced the bounce back and coronavirus business interruption loan schemes.
RLS was brought in to support businesses in recovering from the impacts of the pandemic by providing financial support (loans) of between £1,000 and £10 million. The loans are intended to help businesses grow. While there are no specified restrictions on what the money should be used for, businesses could use the money to improve cash flow, invest in equipment or fund projects.
Businesses apply for funding from accredited lenders. Lenders set their own interest rates and fees but interest rates must not exceed 14.99%. To encourage lenders to participate in the scheme the Government provided a guarantee that lenders would be able to recoup 80% of the outstanding value of loans from businesses that default on repayment.
Businesses borrowing less than £250,000 will not be required to provide any form of personal guarantee and a borrower’s principal private residence cannot be taken as security.
Under the current scheme (which runs until the 31st December 2021) most businesses currently trading in the UK (with some notable exceptions – banks, building societies, insurers and public sector bodies) are eligible.
The main requirement is for businesses to demonstrate that they have been adversely affected by the pandemic and that their business is viable or would have remained viable had the pandemic not occurred.
Businesses that have accessed finance from previous government guaranteed loan schemes such as the Bounce Back Scheme are still eligible for the RLS.
Repayments start immediately but businesses can have up to 6 years to repay term loans and asset finance and up to 3 years to repay overdrafts and invoice finance.
Changes to the Scheme
From 1 January 2022, the following changes will come into force:
- The scheme will only be open to small and medium sized enterprises (turnover <£45m)
- The maximum amount of finance available will be £2 million per business (maximum amount per Group limited to £6m)
- The guarantee coverage that the government will provide to lenders will be reduced to 70%