The Recovery Loan Scheme – what is it, and how does it differ from previous loan schemes?

13 May 2021 - Elizabeth O'Hanlon

The latest government loan scheme was announced in the March Budget by Rishi Sunak and launched on 6 April 2021. Just like similar government schemes, the Recovery Loan Scheme (RLS) provides financial support to UK businesses as they recover following the coronavirus pandemic.

When did it start and how does it work?
The RLS scheme is open from 6 April until 31 December 2021. It takes over from the Bounce Back Loan Scheme and the Coronavirus Business Interruption Loan Scheme which both ended on 31 March 2021.

The government guarantees 80% of loans taken out through the RLS, but the borrower remains fully liable for the debt.

Businesses of any size and from any sector can apply to the scheme if Covid-19 has affected your business. You can use the funding of up to £10 million finance for any legitimate business purpose including managing cashflow, investment and growth. However, you must be able to afford to take out additional debt finance for these purposes.

I took out a loan through one of the previous schemes – can I borrow from this one too?
The RLS is still available to your business, even if you have already borrowed from any of the other coronavirus loan schemes, namely:

  • the Bounce Back Loan Scheme (BBLS)
  • the Coronavirus Business Interruption Loan Scheme (CBILS)
  • the Coronavirus Large Business Interruption Loan Scheme (CLBILS)

However, the amount you have borrowed under one of these schemes may in certain circumstances limit the amount you may borrow under RLS.

How much can my business borrow?
The amount you can borrow will be dependent on your individual circumstances and the type of financing that your business needs. For a straightforward loan or overdraft you can borrow from £25,001 to £10 million. For asset finance and invoice finance you can borrow from £1000 to £10 million. The length of the facility depends on the type of finance applied for and can be up to 6 years.

What are the main differences between the previous loan schemes and this one?
Firstly, unlike the previous schemes, you will need to start repaying the loan straight away (the CBILS and CLBILS allowed 12 months before repayments needed to be made).

Secondly, you will need to pay any RLS fees upfront, and pay any interest yourself (the government paid the interest charges for previous schemes).

Should I just get a conventional business loan? What’s the advantage of the RLS?  
The main difference is that the government is offering a guarantee to the lender of up to 80% of bad debts under the RLS, while a business loan would not offer this protection. In all other respects the loans are the same: requiring businesses to meet the lender’s criteria, charging an interest rate and businesses remaining responsible for the repayment of the debt.

The government guarantee means that the lender will be reimbursed (in this case up to 80%) if the borrower doesn’t repay the loan. This should mean that lenders like banks will have more security that the loan will be repaid, so makes it a more attractive proposition for businesses who may otherwise struggle to secure funding.

What do I do next?
For more information and a list of lenders visit the British Business Bank website. As with any loan application you will stand a better chance of getting the loan approved if you can provide documents and evidence of your credibility. This could include:

  • Your business plan
  • Current management accounts such as cashflow, forecasting and profit and loss statements
  • Previous years’ accounts
  • Evidence of assets owned by the business
  • Details of any other loans and overdrafts
  • Particulars of any personal loans, overdrafts, credit card debts, mortgages etc

Your application will be credit checked and the business will go through money laundering and fraud checks.

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