As the UK economy begins to reopen and businesses undertake the challenging task of rebuilding from the impact of the pandemic, they are being encouraged to make use of the new Recovery Loan Scheme.
The Recovery Loan Scheme is a Government-backed finance scheme that has replaced the previous Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS).
It allows a qualifying business to borrow up to £10 million through a variety of finance facilities, including:
- Traditional term loans;
- Overdrafts;
- Invoice finance; or
- Asset finance.
The scheme has been created to assist businesses during these challenging times by helping them to cover the expenses of reopening and assisting with working capital and cash flow.
Which businesses are eligible for the Recovery Loan Scheme?
To access between £1,000 and £10 million of funding, your businesses must meet the following eligibility criteria:
- It is trading in the UK
- It is viable or would be viable were it not for the pandemic
- It has been impacted by the Coronavirus pandemic
- It is not in collective insolvency proceedings.
If your business has previously used the CBILS or BBLS you are still eligible to apply for the Recovery Loan Scheme, as long as you meet the eligibility criteria and pass a lender’s checks.
What rules apply to the Recovery Loan Scheme?
Although the Recovery Loan Scheme offers a useful source of finance, businesses should be aware that certain rules and criteria apply, including:
- No personal guarantees up to £250,000
- Public sector, banks, building societies, insurers and reinsurers, and state-funded primary and secondary schools cannot apply
- Finance terms are up to six years for term loans and asset finance facilities, while for overdrafts and invoice finance facilities, terms will be up to three years
- The Government guarantees 80 per cent of the finance to the lender to ensure they continue to have the confidence to lend, but each business is still liable for the loan
- A borrower’s principal private residence cannot be taken as security
- Interest and fees will be paid by the business from the outset, unlike the previous loan schemes
- No turnover limit for applications
- The Recovery Loan Scheme is not a secured product, which means that property can no longer be funded.
How much funding can businesses access via the Recovery Loan Scheme?
The maximum amount a business can borrow varies, starting at £1,000 for asset and invoice finance, and £25,001 for term loans and overdrafts.
The maximum value of a facility is the lesser of £10 million or 25 per cent of your 2019 turnover or double the wage bill of 2019.
Anything borrowed under CBILS or CLBILS will count towards a business’ maximum amount. The amount borrowed is also subject to a limit of £30 million per borrower group.
The Recovery Loan Scheme provides favourable terms when compared to other funding solutions, as APR is capped at 14.99 per cent.
What information do I need to apply for the Recovery Loan Scheme?
The agreement to lend is at the lender’s discretion and, therefore, they may each request different information. However, most will ask for:
- Loan amount, purpose, and term
- A short paragraph on the business background and how it has been impacted by COVID-19
- Last two full sets of filed accounts (where available)
- Last 12 months bank statements (PDF format and no older than seven days)
- Shareholder and directors’ details, including name, date of birth and home address
- Up to date management accounts
- Current debt position of existing loans, facilities.
How long do I have to apply for funding via the Recovery Loan Scheme?
The Recovery Loan Scheme is available now and applications close on 31 December 2021. If your business needs this financial boost, you should begin preparing your application immediately.
If you would like to make use of the Recovery Loan Scheme then our team can help you. To apply for finance, please contact our experienced team today.