The UK government has announced a new government-backed loan scheme to support UK businesses as they recover from the economic impact of the coronavirus pandemic, the legal team from Fox Williams LLP offer a rundown of the basics of the RLS.

The scheme, which is open to applications until 31 December 2021 (subject to review), replaces each of the Bounce Back Loan Scheme, the Coronavirus Business Interruption Loan Scheme and the Coronavirus Large Business Interruption Loan Scheme. 

We examine some of the key features of the scheme and some practical suggestions for those applying.

How the scheme works

The RLS scheme will again operate through participating lenders and the government will partially guarantee up to 80% of the facility, subject to an overall cap per lender. 

The guarantee is provided to the lender bank and not the business, therefore the borrower is 100% liable for the repayment of the facility under this scheme (not just 80%).

Businesses can still apply for the Business Recovery Loan Scheme if they have received support under any of these earlier Covid-19 guaranteed loan schemes.

The scheme will cover the following facilities, starting at amounts of £1,000 and up to £10 million for individual businesses and up to £30 million for groups of companies:

  1. term loans;
  2. overdrafts;
  3. invoice finance; and
  4. asset finance.

Other key features include:

  • no form of personal guarantee for loans of £250,000 or less;
  • a borrower’s principal private residence cannot be taken as security;
  • terms of the facility can be for up to three years for overdrafts and invoice finance, and up to six years for loans and asset finance;
  • businesses must meet the costs of interest payments and facility fees;
  • the annual effective rate of interest, upfront fee and other fees cannot exceed 14.99%; and
  • there is no turnover restriction.

The purpose of the scheme is to help businesses affected by Covid-19 and the facilities guaranteed under the scheme are intended to be used for business purposes, including managing cashflow, investment and growth. It is designed to support businesses that can afford the cost of taking out such additional finance for these purposes.

How do I apply?

The facilities will be available via lenders accredited by the British Business Bank, and it is important to note that applicants should make applications through their preferred finance provider in the first instance, who in turn deal with the British Business Bank. As examples, these are the entry pages to the Scheme for the four traditional High Street Banks.

Eligibility

Applications for the new scheme opened on 6 April 2021 and are expected to stay open until 31 December 2021, although this is subject to review. To be eligible, businesses must satisfy the following criteria:

  1. be a business trading in the UK; and
  2. show that your business:

a. would be viable were it not for the pandemic; b. has been adversely impacted by the pandemic; and c. is not in collective insolvency proceedings (unless in scope of the Northern Ireland Protocol).

Credit and fraud checks will be required for all borrowers.

The following businesses are not eligible for the Business Recovery Loan Scheme:

  1. banks, building societies, insurers and reinsurers;
  2. public-sector bodies; and
  3. state-funded primary and secondary schools.

Haven’t I seen this before?

Another crisis, another business loan scheme.

The Business Recovery Loan Scheme (RLS) replaces each of the Bounce Back Loan Scheme, the Coronavirus Business Interruption Loan Scheme and the Coronavirus Large Business Interruption Loan Scheme. As stated above, you can still apply for the Business Recovery Loan Scheme (RLS) if you have received support under any of these earlier Covid-19 guaranteed loan schemes.

Some businesses may also remember that following the last financial crisis over a decade ago, there was the launch of a similar loan guarantee scheme called Enterprise Finance Guarantee (“EFG”) which also aimed at facilitating lending to the UK’s smaller businesses. 

Since its launch in 2009, the British Business Bank’s EFG Scheme supported the provision of over £3.3bn of finance to more than 35,000 smaller businesses in the UK. 

On 22 November 2017, the government announced it was extending the programme for a further four years (up to November 2021), enabling the guarantee up to £2bn of lending over that time. As such, businesses may also look at loans under that scheme.

The authors of this report are Paul Taylor, Freddie De Boise and Cristiana Mitrofan of Fox Williams LLP 

Recovery Loan Scheme for UK businesses impacted by Covid-19