August 12, 2022

What is The Recovery Loan Scheme?

The Recovery Loan Scheme is designed to facilitate UK based businesses greater access to finance, the scheme was first devised to enable businesses to expand and recover from the impacts of the COVID-19 Pandemic. The scheme was announced by the Chancellor in the latest budget and has replaced the previous government loan schemes such as the Bounce Back Loan Scheme and the Coronavirus Business Interruption Loan Scheme, which applications closed on the 31st March 2021. The newest scheme launched in August 2022 (RLS3.0) and is designed to support access to finance for UK SMEs as they look to grow.

How Does the Recovery Loan Scheme Work?

The Recovery Loan Scheme is the latest government loan scheme in which the government guarantees 70 percent of the finance to the accredited lender.

The scheme facilitates individual borrowing of £2 million per business.

Funds taken under the scheme can be used for any business purpose: working capital, cash flow, growth/expansion, etc.

As the borrower, the business is always 100 percent liable for the debt borrowed in the case of a default. The amount a business can borrow under the scheme is subject to the accredited lenders that are participating in the scheme. There is a vast array of lenders that are accredited under the scheme which are listed on the British Business Bank’s website.  

Across the accredited lenders, each lender will have differences in the level of security they require to take under the scheme.

  • All lenders, although previously not required may look to take personal guarantees in line with the individual lenders criteria.
  • The primary family home cannot be taken as collateral.  
  • You cannot apply for the recovery scheme V3.0 if your turnover exceeds £45M.
  • Interest and fees vary across the accredited lender panel however the maximum interest rate has been set at 14.99 percent.

If the business has already borrowed under previous COVID-19 government schemes such as the Coronavirus Business Interruption Loan Scheme and the Coronavirus Large Business Interruption Loan Scheme, the amount borrowed will be deducted from the maximum amount eligible under the Recovery Loan Scheme.

What Businesses are Eligible for the Recovery Loan Scheme (as of 1st August 2022)?

Businesses can apply for the Recovery Loan Scheme if they meet the following criteria: 

  • A UK trading business 
  • The business is a small or medium-sized enterprise
  • The business was a viable trading business before the pandemic 
  • The business has a sound borrowing proposal in line with the businesses main training activities  
  • The business isn’t in collective insolvency proceedings 

What types of business are eligible for the scheme?

  • Private Limited Companies 
  • Limited Liability Partnerships 
  • Public Limited Companies 
  • Sole Traders 

Business sectors that are ineligible:

  • Banks 
  • Building Societies 
  • Insurance Companies 
  • Public-sector bodies 
  • State-funded primary and secondary schools 
  • Co-operatives
  • Community Benefit Societies

The Recovery Loan Scheme and Covid-19

Previous versions of the Recovery Loan Scheme were focused on businesses that were affected by the Covid-19 pandemic. However, as of August 1st 2022 a Covid-19 impact test will not be required for most borrowers to apply for the new iteration of the Recovery Loan Scheme.

What Products are Available Under the Recovery Loan Scheme? 

There are a variety of business finance products that are available under the scheme, not all lenders that are accredited will offer all types of products. Therefore, it is advantageous to speak with a commercial finance broker if you are unsure which product best suits the business’s needs. 

  • Term Loan Facilities 
  • Overdraft facilities 
  • Invoice Finance Facilities 
  • Asset finance Facilities 

The Recovery Loan Scheme vs the Bounce Back / Coronavirus Business Interruption Loan Scheme: 

  • The government doesn’t provide a Business Interruption Payment (BIP) which covers the first 12 months of interest payments.
  • The government isn’t covering the lender’s arrangement fees, which they did in the previous support schemes.
  • On average the fixed rates under the Recovery Loan Scheme are higher than the other support schemes as the government isn’t covering the first 12 months of interest payments and the lenders arrangement fee. 
  • Interest rates will differ from the previous schemes, this is mainly because the facilities are available via a network of accredited lenders, each lender sets their own interest rates for the scheme.
  • The lenders will provide fixed interest rates, or adjust their interest rates based on the risk of the business.

Borrowing Under the Recovery Loan Scheme with Other Government Support Schemes in Place

Businesses are able to refinance other government loan schemes such as the Bounce Back / Coronavirus Business Interruption Loan Scheme under the Recovery Loan Scheme. You are able to refinance existing government loan schemes with the same lender or with a new accredited lender. If a refinance is being considered, the total amount being borrowed has to meet the lenders affordability metrics, which vary per lender. 

If a refinance of existing government loan schemes isn’t required but the business has an outstanding balance on the other loan schemes, then the additional amount required will be deducted from the existing government loan exposure. 

The main consideration when looking to refinance the previous government loan schemes onto the Recovery Loan Scheme is the differences in Terms and Conditions between the schemes. Such as the reduced government guarantee to the lender, security and interest rates.  

Provide’s platform can help you navigate the ever-changing finance landscape, and find a lender that is right for your business. With connections to over 200 lenders and a comprehensive understanding of the newest iteration of the Recovery Loan Scheme, Provide’s team of financial experts will support find which product type would be the most appropriate for a business’s financial needs. 

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