Matthew Padian (managing associate) and Laura Burge (paralegal) of Stevens & Bolton LLP offer an update on the Recovery Loan Scheme (RLS) from the Autumn Budget 2021. 

The Recovery Loan Scheme (RLS), launched back in April 2021, has provided financial support to businesses across the UK that have been affected by the coronavirus pandemic.

In his Autumn Budget, the Chancellor of the Exchequer, Rishi Sunak, announced a six-month extension of the scheme, ending on 30 June 2022. The extension has also brought with it some changes to the scheme which will take effect from 1 January 2022.

The changes being introduced from next year will limit which businesses are eligible to apply for funding under the RLS by opening applications to small and medium-sized enterprises only.

Further limitations are being placed on the amount of finance available, which will be capped at £2m per business. In addition, the guarantee coverage that the government will provide to lenders will be reduced from 80 per cent to 70 per cent. Further details about how the RLS works can be found here.

In our previous commentary on the RLS, we noted that take-up of the RLS scheme amongst potential borrowers was said to be low compared to its predecessor schemes – the Coronavirus Business Interruption (CBILS) and Bounce Back (BBLS) loan schemes. It is uncertain at this stage if applications remain low and, if so, whether this is due to a lack of appetite amongst potential borrowers to seek this funding or a reluctance amongst lenders to provide it.

Another factor that might dampen interest amongst borrowers in the RLS is that a considerable number of businesses are already heavily indebted with CBILS or BBLS loans. Many of these borrowers also face the prospect of higher interest payments if the Bank of England chooses to raise the base rate.

According to a recent article in The Times, only half the lenders that offered £26.4bn of loans through CBILS did so at fixed interest rates. Whilst the Bank of England voted on 4 November to keep interest rates at their record low level of 0.1 per cent, many are expecting an interest rate rise to follow in the coming months. Against this backdrop, borrowing more debt under the RLS just might not be an attractive proposition for many companies.