Announced in the March 2021 budget, the government’s new Recovery Loan Scheme (RLS) aims to provide financial support to help UK businesses recover, restart and grow. It could turn out to be a real lifeline, especially for small and independent businesses.

But how do you access the RLS and who’s eligible for financial support? How much could your business get, and what can you use the money for? Let’s take a look at what you need to know about the scheme.

The Recovery Loan Scheme – the basics

Here are all the key points of the scheme in a nutshell:

• It’s available to businesses of all sizes and across most industries.
• Originally providing between £25,001 and £10 million per business in loans and overdrafts, from 1st January 2022 the government will guarantee 70% of a loan with a maximum £2 million per business available.
• If you receive a loan, you can use the cash for any legitimate business purpose you want.

 
The RLS will also replace all other existing coronavirus support schemes for UK businesses. This includes the Coronavirus Business Interruption Loan Scheme (CBILS), Coronavirus Large Business Interruption Loan Scheme (CLBILS) and Bounce Back Loan Scheme (BBLS).

If, like other businesses impacted by the pandemic, you’ve been anxious about some of these schemes coming to an end, the announcement of a replacement might be welcome news.

What does the Recovery Loan Scheme offer?

The new Recovery Loan Scheme offers a choice of lending solutions to businesses, so you can pick the best arrangement for you.
 

 
All finance will be made available through a network of approved and accredited lenders. The government has said that it plans to make the full list public as soon as it’s been finalised.

As an incentive to lenders, the government will be guaranteeing up to 80% of the finance. This is to give lenders the confidence to continue to lend to businesses, who otherwise may struggle to access the credit they need.

Who’s eligible for financial support?

You’ll be eligible to apply for a loan through the Recovery Loan Scheme if your business:

• Trades in the UK.
• Has evidence of being affected by the pandemic, such as a demonstrable downturn in income.
• Is a viable business – or would be if not for the impact of COVID-19.

The only business types excluded from the scheme are banks, building societies and insurance companies, for obvious reasons. Also ineligible are state primary and secondary schools, and public sector organisations.

Unlike the other COVID support schemes the RLS will replace, there’s no turnover restrictions – so companies of all sizes can apply.

Can I apply for the Recovery Loan Scheme if I’ve used other schemes?

The good news is that you can still apply for the Recovery Loan Scheme, even if you’ve made use of other coronavirus support schemes.

Important points about interest, fees and repayments for the RLS

Unfortunately, the Recovery Loan Scheme won’t be offering free money to businesses. If only.

 
You’ll start paying interest from day one, as well as all of the relevant fees charged by the lender. The exact terms of your repayments, fees, and interest will depend on your individual lending agreement.

Is the Recovery Loan Scheme as good as previous COVID support schemes?

As with all things in business, there are pros and cons (such as those below), depending on your specific circumstances.

What’s good about the RLS?

The RLS will offer what are, in many ways, just ordinary business loans. However, with the backing of the UK government and access through a government-controlled scheme, businesses should find it much easier to apply – and be accepted – for loans. You can borrow the same large amounts as with CBILS. Crucially, you can also spend the money however you like.

This all makes the scheme especially useful for businesses who are in a less than brilliant financial state following the COVID-19 crisis and its numerous nationwide lockdowns.

So, the RLS is straightforward, easy to understand and quite flexible. The eligibility criteria are far less strict than previous schemes such as the CBILS. Plus, there’s just one loan to repay, rather than loans from multiple support schemes running at once.

The RLS could also be good news for new businesses, as there’s no minimum trading history requirement. But there are of course a few downsides to consider.

What are the potential drawbacks of the RLS?

For starters, the government is only guaranteeing 80% of the loans, so lenders could still be quite cautious about lending – even for small amounts.

RLS lending is also subject to affordability checks. This is both a good and bad thing. Affordability checks can help to reduce fraud, and prevent future defaults from businesses who can’t pay back what they’ve borrowed. But it could also mean that some companies, particularly those in poor financial shape, could be barred from accessing the scheme altogether.

Lenders will be looking for viable businesses to reduce the risk of future defaults, which protects you as much as it does them. As heartbreaking as it might be, you’ll need to have a think about the viability of your business

What else do I need to know?

Here are a few final pointers worth remembering before you apply for the Recovery Loan Scheme:

• No personal guarantees are required for finance under £250,000.
• You won’t be able to use your home as security for any loans.
• If your business has already started collective insolvency proceedings, unfortunately you won’t be eligible to apply.
• Credit checks and anti-fraud checks will be carried out on all applicants.

As an applicant you’ll still be subject to the individual lender’s assessment, which could impact the amount you receive under the scheme. However, it’s assumed that when making their decisions, many lenders will be overlooking their concerns about the short-term performance of businesses due to the pandemic.

How to apply for the Recovery Loans Scheme

You’ll have to hold tight for just a bit longer to find out how to apply for the RLS. The government is keeping the full details of the scheme under wraps for now, possibly until existing support schemes such as the Coronavirus Business Interruption Loan Scheme (CBILS) wind down at the end of March 2021.

The best way to stay up to date with the latest news is to keep checking back on the UK Government Recovery Loan Scheme page.

Making the most of your loan

Now, we’ve covered all of the details on the Recovery Loan Scheme that are available so far, but there’s one last thing to talk about. How will you use the money?

Of course, you’ll know best where your business needs support, and what you’ll need to bounce back after the worst of the pandemic is over.

One of the attractive features of the RLS is that you can use the money for any legitimate business purpose. Before you apply in April 2021, it’s worth putting some serious consideration into how you’ll prioritise your spending.

Use your loan to help tide your business over in the here and now

For example, helping to manage cashflow or invest in new equipment or improvements to your premises. You can top up your inventory, make your processes more cost-effective or even take on a new staff member (in which case, you might want to read our guide for employers!).

And of course, there may be the extra costs associated with Brexit paperwork to pay for.

Or how about pivoting to a new, more pandemic-resilient business model?

For example, retailers who’ve had success with online selling during lockdown may want to invest in making it a permanent part of their business model. You may also want to take steps to future-proof your supply chain against shocks like COVID-19 and Brexit.

This could be a really smart way to spend the money, to insulate your business so that you (fingers crossed) won’t need to access support schemes in the future.

Get your long-term plans for growth back on track

Rather than firefighting or managing day-to-day operations in the short-term, you may instead want to focus on the future. The Recovery Loan Scheme can be used to kickstart plans for growth and expansion that you’ve had to put off due to the pandemic.

You can make serious investments in your business, open new sites, launch a new product line or branch out into whole new markets. With up to £10 million potentially on the table, your options are wide open.

Just make sure you can afford the repayments without putting your business at risk. These are uncertain times, financially speaking. The Recovery Loan Scheme could be super helpful for getting your business back on track, but remember that it is still a loan that will need to be repaid, interest and costs included.

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