The Recovery Loan Scheme (RLS)
The Government backed Recovery Loan Scheme (RLS) that was intially put in place to help support businesses in financial crisis after the impact of the Covid-19 pandemic has now been extended. The new RLS has been repeated to support access to finance for UK businesses as they look to invest and grow.
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About the scheme
The new scheme will allow credit amounts of up to £2 million for borrowers outside of the scope of the Northern Ireland Protocol. Borrowers within the scope of the Northern Ireland Protocol may borrow up to £1 million unless they operate in a sector where aid limits have been reduced. Agriculture, fisheries/aquaculture, and road freight haulage can borrow through the scheme, however, the maximum that can be borrowed is subjected to a lower credit limit.
Businesses can use the scheme for any legitimate business purpose – including managing cashflow, investment and growth. However, businesses must be able to afford to take out additional debt finance for these purposes.
The British Business Bank will administer the scheme on behalf of the Secretary of State for BEIS.
Key Features
The Recovery Loan Scheme aims to improve the terms on offer to borrowers. If a lender can offer a commercial loan on better terms, they will do so.
Key features include:
- Up to £2 million per business group: The maximum amount of any credit provided under the scheme is £2 million per business group for borrowers outside the scope of the Northern Ireland Protocol, and up to £1 million per business group for Northern Ireland Protocol borrowers. Minimum credit sizes vary, starting at £1,000 for asset and invoice finance, and £25,001 for term loans and overdrafts.
- Wide range of products: RLS supports term loans, overdrafts, asset finance and invoice finance facilities. Not all lenders will be able to offer all products.
- Term length: Term loans and asset finance facilities are available from three months up to six years, with overdrafts and invoice finance available from three months up to three years.
- Access to multiple schemes: Businesses that took out a CBILS, CLBILS, BBLS or RLS facility before 30 June 2022 are not prevented from accessing RLS after 1 August 2022, but in some instances borrowing under these schemes may reduce the maximum amount you are eligible for.
- Pricing: The annual effective rate of interest and upfront and other fees cannot be more than 14.99%.
- Personal Guarantees: Personal guarantees can be taken at the lender’s discretion, in line with their normal commercial lending practices. Principal Private Residences (your home) cannot be taken as security within the Scheme.
- Guarantee is to the lender: The scheme provides the lender with a 70% government-backed guarantee against the outstanding balance of the facility after it has completed its normal recovery process. The borrower always remains 100% liable for the debt.
- Decision-making delegated to the lender: Recovery Loan Scheme-backed facilities are provided at the discretion of the lender. Lenders are required to undertake their standard credit and fraud checks for all applicants.
The assistance provided through RLS, like many Government-backed business support activities, is regarded as a subsidy and is deemed to benefit the borrower. There is a limit to the amount of subsidy that may be received by a borrower, and its wider group, over any rolling three-year period. Any previous subsidy may reduce the amount a business can borrow.
Eligibility Criteria
Turnover Limit
- The scheme is open to smaller businesses with a turnover of up to £45m (on a group basis, where part of a group).
UK-Based
- The borrower must be carrying out trading activity in the UK and, for most businesses, generating more than 50% of its income from trading activity.
No covid-19 impact test required
- Unlike the previous repeat of the scheme, for most borrowers, there is no requirement to confirm they have been affected by Covid-19.
Viability Test
- The lender will consider that the borrower has a viable business proposition but may disregard (at its discretion) any concerns over its short-to-medium term business performance due to the uncertainty and impact of Covid-19.
Business in difficulty
- The borrower must not be a business in difficulty, including not being in relevant insolvency proceedings.
Subsidy Limits
- Borrowers will need to provide written confirmation that receipt of the RLS facility will not mean that the business exceeds the maximum amount of subsidy they are allowed to receive. All borrowers in receipt of a subsidy from a publicly funded programme should be provided with a written statement, confirming the level and type of aid received.
How do I access an RLS facility?
RLS is available through the British Business Bank’s accredited lenders list (to which Winchester Corporate Finance has access). The list is constantly being updated. Some lenders that offered facilities under the previous iterations of RLS between 6 April 2021 and 30 June 2021 may not be accredited to offer RLS facilities from August 2022.
Accredited lenders should only offer finance through RLS if they are unable to offer a facility on equivalent terms without the guarantee. Whether your business is eligible for RLS and whether it is suitable for you will be for the accredited lenders to decide. Such lenders range from high street and challenger banks to asset-based and specialist local lenders.
RLS supports a wide range of business finance facilities covering term loans, overdrafts, asset finance, and invoice finance.
Minimum facility sizes vary, starting at £1,000 for asset and invoice finance, and at £25,001 for term loans and overdrafts.
The maximum facility value per business group is:
- £2 million for businesses across all sectors outside the scope of the Northern Ireland Protocol; or
- For businesses in scope of the Northern Ireland Protocol:
- £110,000 for businesses in the agriculture sector;
- £170,000 for businesses in the aquaculture and fisheries sector;
- £570,000 for businesses in the road haulage sector; and
- £1 million for businesses in all other sectors.
If your business has taken out CBILS, CLBILS, BBLS and/or RLS facilities before 30 June 2022, you can access RLS providing you meet the RLS eligibility criteria and that any additional lending is considered affordable by the lender.
If you accessed CBILS, CLBILS and/or RLS facilities before 30 June 2022, this will not count towards your cumulative subsidy limit in calculating the maximum amount you can borrow through RLS.
If you took out a BBLS, it may count towards your cumulative aid allowance when calculating the maximum amount you can access – you will have been informed by your BBLS lender at the time if your BBLS was provided under the EU’s de minimis Regulations.
How long can I borrow for?
Term loans and asset finance facilities are available for up to six years, with overdrafts and invoice finance available for up to three years. A term extension beyond six years, up to a maximum of 10 years for existing RLS facilities can be made in connection with the provision of forbearance relating to the facility, at the discretion of the lender if within its usual forbearance policies.
What can I use it for?
An RLS facility can be used for any legitimate business purpose including, but not limited to, managing cashflow, or investment and growth purposes.
What fees and interest rates can I expect?
Interest rates and fees charged by lenders will vary and will depend on the specific lending proposal, but lenders are required to pass on the economic benefit of the guarantee to your business after accounting for its costs in using the scheme, for example, the scheme lender fee they are required to pay. Fees and interest are capped at 14.99%. Any upfront fee should not be greater than 5%.
Winchester Corporate Finance will be able to give you full details on what interest rates will be payable.
Will I be required to provide a personal guarantee?
Lenders are allowed to take personal guarantees for facilities of all sizes, if taking a personal guarantee is part of their typical lending practice. Lenders cannot take your principal private residence as security.
A worked example to show what this means in practice:
- Business borrows £1 million facility with a £100,000 personal guarantee
- Business pays off £400,000 then defaults, owing £600,000
- Lender recovers £100,000 from other secured business assets such as a debenture (e.g., stock), leaving £500,000 outstanding
- Call on personal guarantee is £100,000 leaving £400,000 as an initial loss to the lender
- Lender can claim for 70% of this loss (£280,000) under the guarantee, leaving £120,000 as the final loss to the lender.
Refinancing with RLS
Your business can, in certain circumstances, use an RLS facility to refinance existing debt. For example, where your business is seeking to put itself on a more stable financial footing and/or improve its working capital position, then in principle an RLS facility could be provided where the business meets the RLS eligibility criteria.
Refinancing can be undertaken with or without an increase in the original borrowing.
Can RLS refinance an existing BBLS/ CBILS/ RLS facility, in part or in full?
Yes, where total financing needs (including any increase) are greater than the minimum facility sizes available under RLS.
Any re-financing will be considered as a new application for RLS, and will be subject to meeting the eligibility criteria. Re-financing can be sought with your existing lender or a different accredited lender.
Existing BBLS borrowers are able to refinance under RLS, however, borrower protections and scheme eligibility/terms under these schemes differ. Businesses should first discuss with their lender.
The total amount a business can borrow, including any additional lending sought as part of the re-financing of an existing facility will depend on a lender’s affordability assessment and RLS requirements.
Eligibility
Provided that they satisfy the other eligibility criteria, RLS is open to:
- sole traders
- corporations
- limited partnerships
- limited liability partnerships
- co-operatives and community benefit societies, and
- any other legal entity carrying out business activity in the UK.
Your business (together with your business group, if applicable) must generate more than 50% of its turnover from trading activity in the UK (i.e., the sale of goods or services).
Charities and further education establishments that do not generate more than 50% of their turnover from trading activity in the UK are currently eligible until 31 December 2022 so long as they can attest to having been affected by Covid-19.
Supporting Documents
In all cases, the lender will need to be provided with the amount of any previous subsidy received to obtain an RLS facility.
You may also need to provide certain other documents, which may vary from lender to lender but are likely to include:
- Management accounts
- A business plan
- Historic accounts
- Details of business assets
An RLS facility may still be an option to provide finance to support your business even if you do not have everything listed here. The decision will be up to the lender.
Northern Ireland
Borrowers in the scope of the Northern Ireland Protocol may borrow up to £1m unless such borrower operates in a sector where aid limits are reduced, in which case the maximum that can be borrowed is subject to a lower cap. These include agriculture, fisheries/aquaculture and road haulage. Northern Ireland Protocol: All borrowers will need to answer some questions to determine whether they are inside or outside the scope of the Northern Ireland Protocol, to determine the relevant subsidy limit and hence the potential maximum amount they can borrow under RLS.
For charities and Further Education colleges, confirmation of Covid-19 impact will still be required.
Fraud warning: RLS is managed by the British Business Bank only through accredited lenders.
Winchester Corporate Finance makes sure that you are only offered an RLS-backed facility through an accredited lender.
As part of the application, you will need to complete three questions which will assess whether or not your business is potentially in the scope of the Northern Ireland protocol:
- Is your business (that is the legal entity proposing to borrow the RLS facility) established or registered in Northern Ireland?
- Does your business have any active subsidiaries, an active parent company, a business in the same corporate group and/or operations in Northern Ireland? Or does your business have plans to operate any such entities, or establish other operations in Northern Ireland within the next three years?
- Does your business provide a service or is it part of a supply chain that is specifically tailored to the needs of a customer or customers in Northern Ireland that manufacture or sell goods or participate in the Northern Ireland wholesale electricity market?
If the answer to any of the above questions is yes, you are likely within the scope of the Northern Ireland Protocol.
If your business appears to be within the scope of the Northern Ireland Protocol and wants to borrow an amount that would take it above the maximum amount eligible, then you may have the opportunity to complete a more detailed questionnaire to determine if you are in scope.
"Will details about my facility be made publicly available?"
Transparency
Where required, information about facilities provided to businesses outside the scope of the Northern Ireland Protocol may be publicised on a new UK Government transparency database. Details of the UK reporting requirements will be required after the Subsidy Control Act 2022 comes into force and is expected to apply only where the amount of subsidy received exceeds £100,000.
Information on individual facilities for businesses in the scope of the Northern Ireland Protocol is not expected to be made publicly available.
Information that may be published is a subset of the information your business provides in your loan application, including:
- the identity of the borrower, for example, the name of your business or potentially your name if you are a sole trader or in a partnership
- type/size of business
- the region where the business is located
- the sector in which the business operates
- the date the aid was granted and the term of the facility, and
- the amount of aid granted.
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The information reported is related to the business but may include personal data if you are a sole trader or in a partnership, or if your business name includes a reference to a natural person.
Further information on how BEIS and the British Business Bank process and share data can be found in the BEIS Privacy Notice and the British Business Bank Privacy Notice.
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