Recovery Loan Scheme: Frequently asked questions
What is the Recovery Loan Scheme (RLS)?
RLS aims to help businesses of any size across the UK affected by Covid-19, providing support for businesses to recover and grow following the disruption of the pandemic. It is designed to appeal to businesses that can afford to take out additional debt finance and can be used for any legitimate business purpose, including managing cashflow, investment and growth.
Please note, from 1st January 2022 the following changes came into force:
- The scheme will only be open to small and medium sized enterprises (turnover <£45m)
- The maximum amount of finance available will be £2 million per business (maximum amount per Group limited to £6m)
- The guarantee coverage that the government will provide to lenders will be reduced to 70%
What are the key features of RLS?
RLS guarantees a wide range of products, covering term loans, overdrafts, asset finance and invoice finance facilities. Businesses can borrow up to a maximum of £10 million, available on repayment terms up to six years (for term loans and asset finance) and up to three years (for overdrafts and invoice finance facilities)
Minimum facility sizes vary, starting at £1,000 for asset and invoice finance, and £25,001 for term loans and overdrafts.
Finance For Enterprise can offer term loans up to £250,000 over a term up to 5 years.
Businesses will be required to meet the costs of interest payments and any fees associated with the facility from the outset.
Finance For Enterprise will be required to undertake standard credit, fraud, Anti-Money Laundering (AML) and Know Your Customer (KYC) checks for all applicants. When making their assessment, lenders may overlook concerns over short-to-medium term performance owing to the pandemic. The checks and approach may vary between lenders.
The scheme provides the lender with a government-backed 80% guarantee against the outstanding balance of the facility. The business remains 100% liable for repayment of the facility.
Am I eligible?
The scheme is open to most businesses, who meet the eligibility criteria, regardless of turnover. A business with an existing facility under either the Bounce Back Loan Scheme (BBLS), the Coronavirus Business Interruption Loan Scheme (CBILS) or the Coronavirus Large Business Interruption Loan Scheme (CLBILS) can still access the new scheme, providing it is eligible and with total borrowing subject to a lender’s assessment of affordability.
To be eligible for a facility under the Recovery Loan Scheme, a business must meet certain eligibility criteria including but not limited to:
- Be able to self-certify that it has been impacted by Covid-19;
- Be UK-based in its business activity and generate more than 50% of its turnover from trading activity (registered charities and further education establishments are exempt from this requirement);
- Be engaged in trading activity in the UK at the time it draws down the facility;
- Have a borrowing proposal which would be considered viable by the lender. In making their assessment, lenders may, but are not required to, disregard any concerns over a business’s short-to-medium term business performance due to the uncertainty and impact of Covid-19; and
- Not be in collective insolvency proceedings. If the applicant is in scope of the Northern Ireland Protocol then (i) for micro and small enterprises the business was not subject to collective insolvency proceedings or in receipt of rescue aid; or (ii) for other businesses that are not micro and small enterprises they are not an “undertaking in difficulty”, as defined by the EU.
- A business cannot be a bank/ building society; an insurer or reinsurer (can be an insurance broker); a public-sector body; a state funded primary or secondary school; or an individual other than a sole trader or a partner acting on behalf of a partnership.
- If a lender can offer finance on normal commercial terms without the need to make use of the scheme, they may do so.
How do I apply?
RLS is available through the British Business Bank’s accredited lenders, which are listed on British Business Bank website (from 6 April 2021). This list will be kept updated as new lenders are accredited.
In the first instance, you should approach your usual lender– ideally via their website. You may also consider approaching other lenders if you are unable to access the finance you need.
Decision-making on whether you are eligible for RLS and whether it is suitable for you is fully delegated to the accredited RLS lenders. These lenders range from high street and challenger banks to asset-based lenders and smaller specialist local lenders.
When will the scheme be accessible?
The scheme went live on 6 April. At Autumn Budget 2021, the government announced that the Recovery Loan Scheme will be extended by six months to 30 June 2022.
Which products are available under RLS?
RLS supports a wide range of business finance facilities, covering term loans, overdrafts, asset finance, and invoice finance.
Not every lender can provide every type of finance listed. RLS is available through the British Business Bank’s accredited lenders, which are listed on British Business Bank website.
How much can I apply for?
Finance For Enterprise offers term loans between £25,001 and £250,000.
The maximum value of a facility per business is the lesser of:
- £10m; or
- (i) double the businesses wage bill for 2019 or last year available, (ii) 25% of the applicant’s turnover in 2019, or (iii) the applicant’s liquidity needs for the coming 12 months (for large
enterprises) or 18 months (for SMEs). If a business, or any of its linked or partner enterprises (including private equity and venture capital linked enterprises), have borrowed under CBILS
or CLBILS then this will count towards a business’ maximum amount.
The maximum a business can borrow is also subject to a limit of £30m per borrower group, where applicable. In this instance, private equity and venture capital linked businesses are disregarded for the purposes of defining a business group.
What term can I borrow this over?
Term loans from Finance For Enterprise are available for up to five years.
What can an RLS facility be used for?
An RLS facility can be used for any legitimate business purpose including, but not limited to, managing cashflow, or for investment and growth purposes.
What are the exact terms?
Lenders are responsible for providing finance, supported by the guarantee. The exact terms of each facility will depend on the circumstances of your borrowing proposal. All lending decisions are at the discretion of lenders.
What fees and interest rate can I expect?
Interest rates and fees charged by lenders will vary and will depend on the specific lending proposal, but lenders are required to pass on the economic benefit of the guarantee on to borrowers after taking costs into account including the scheme lender fee.
Please speak to us and we will be able to give you full details on what interest rates will be payable.
Can Personal Guarantees be taken under the scheme?
For RLS facilities for £250,000 or less, personal guarantees cannot be taken by lenders in relation to the facility.
For facilities above £250,000, personal guarantees may still be required, at a lender’s discretion, but no recovery action can be taken over a Principal Private Residence and recoveries are capped at a maximum of 20% of the outstanding balance of the RLS facility after the proceeds of business assets have been applied.
Are businesses with CBILS/CLBILS/BBLS facilities eligible for RLS?
Yes. Businesses with CBILS, CLBILS and BBLS facilities can access RLS, providing they meet the eligibility criteria for RLS and any additional lending is considered affordable by the lender.
Can a business benefit from multiple facilities across different product variants?
Yes, subject to meeting the scheme eligibility requirements and provided they do not borrow more than the maximum amount they are entitled to. The maximum amount a business can borrow across different facilities and schemes, will depend on a lender’s assessment of affordability and scheme requirements.
Can a business refinance their BBLS/CBILS/CLBILS facility, in part or in full?
Yes, where total financing needs (including any increase) are greater than the minimum facility sizes available under RLS.
Any re-financing will be considered as a new application for RLS, so will be subject to meeting the Scheme eligibility criteria. Re-financing can be sought with your existing lender or a different accredited lender.
There is no Business Interruption Payment (BIP) under RLS and therefore, any partial or full refinance of a BBLS or CBILS facility will require any remaining BIP entitlement (up to a maximum of 12 months from the outset of the original facility) to be foregone as part of the re-financing process.
Existing BBLS borrowers are able to refinance under RLS, however, borrower protections and scheme eligibility/ terms under these schemes differ. Businesses should first discuss with their lender.
The total amount a business can borrow, including any additional lending sought as part of the refinancing of an existing facility will depend on a lender’s affordability assessment and Scheme requirements.
Can RLS be used to refinance an existing commercial facility?
Businesses can, in certain circumstances, use an RLS facility to refinance existing debt where total financing needs (including any increase) are greater than the minimum facility sizes available under the Scheme. For example, where a business is seeking to put itself on a more stable financial footing and/ or improve its working capital position, then, in principle, a RLS facility could be provided, providing the business fulfils the Scheme eligibility criteria.
Refinancing can be undertaken with or without an increase in the original borrowing.
What types of businesses are eligible?
Provided that they satisfy the other eligibility criteria, RLS is open to:
- sole traders;
- limited partnerships;
- limited liability partnerships;
- co-operatives and community benefit societies; and
- any other legal entity carrying out business activity in the UK with business activity operating through a business account.
The business must generate more than 50% of its turnover from trading activity in the UK (i.e. the sale of goods or services), unless they are a registered charity or further education establishment.
Is the scheme available for all sectors?
No. Banks, building societies, insurance companies; public-sector bodies; and state-funded primary and secondary schools are not eligible.
Is the scheme appropriate for start-ups?
Yes, at the discretion of the lender and subject to meeting the Scheme eligibility criteria.
For early-stage businesses in their first two years of trading, the British Business Bank’s Start Up Loans programme (loans from £500 to £25,000 at interest of 6% per annum) may be more suitable.
Visit startuploans.co.uk for more information.
Can companies that have received support from the Enterprise Investment Scheme (EIS) apply for RLS?
Yes. Companies that have received funding through EIS are eligible, provided that they satisfy the other Scheme eligibility criteria.
What is the definition of a borrower’s group?
RLS uses two definitions for a borrower’s group in order to determine the maximum facility size a business is eligible for. For small, medium and large businesses within scope of the Northern Ireland Protocol, a borrower’s extended group is also used for assessing whether they are a micro or small business for the purposes of the “undertaking in difficulty” test.
- Borrower group: This includes the borrower and all linked enterprises (broadly speaking any company that has control over your business or that you have control over). This includes businesses that are linked through individuals but excludes business that are linked through private equity or venture capital ownership.
- Borrower extended group: This includes the borrower and all partner and linked enterprises, as defined by the European Commission.
Will applicants be required to pass the EU’s ‘undertaking in difficulty’ test?
Medium-sized and large businesses which manufacture or sell goods and are either based in, or have operations in, Northern Ireland will still be required to pass the full EU ‘undertaking in difficulty’ test, as a requirement of the Northern Ireland protocol. Micro and small businesses with the same characteristics will only be subject to a simplified EU ‘undertaking in difficulty’ test.
Medium-sized and large businesses which are involved in the generation of wholesale electricity will also be required to complete the full EU ‘undertaking in difficulty’ test.
The Northern Ireland Protocol only applies to subsidies that affects trade in goods and electricity between Northern Ireland and the EU. Therefore, in general, businesses that provide services in
Northern Ireland do not need to pass the EU “undertaking in difficulty” test to gain access to the scheme. There are certain limited circumstances in which a subsidy to a business that provides
services could still distort competition or affect trade of a particular good between Northern Ireland and the EU and these businesses will need to pass the EU undertaking in difficulty test.
How do I know whether I am in scope of the Northern Ireland Protocol?
As part of the application, businesses will need to complete three simple questions which will assess whether or not a borrower is potentially in scope of the Northern Ireland protocol:
- Does the business participate in wholesale electricity markets in Northern Ireland?
- Is the business based in Northern Ireland?
- Does the business have operations in Northern Ireland?
If a business appears to be in scope of the Northern Ireland protocol, the EU ‘undertaking in difficulty’ test will be applied. If the business does not pass the EU ‘undertaking in difficulty’ test, for reasons other than it being subject to collective insolvency proceedings, it may have the opportunity to complete a more detailed questionnaire to determine whether or not it is in scope.
What test applies to businesses not in scope of the Northern Ireland protocol?
Where businesses are not in scope of the Northern Ireland protocol , they must not be in collective insolvency proceedings.
Businesses who have entered into a Company Voluntary Arrangement since 16 March 2020 may still be eligible for the Scheme subject to a lender’s viability assessment.
What is the EU ‘undertaking in difficulty’ test?
Under the EU test, ‘undertakings in difficulty’ include:
- Individuals or companies that have entered into collective insolvency proceedings;
- Limited companies that have accumulated losses greater than half of their share capital in their last annual accounts (this does not apply to SMEs less than 3 years old);
- Partnerships, limited partnerships or unlimited liability companies that have accumulated losses greater than half of their capital in their latest annual accounts (this does not apply to SMEs less than 3 years old);
- Undertakings that have received rescue aid and have not yet reimbursed the loan or terminated the guarantee, or have received restructuring aid and are still subject to a restructuring plan;
- Companies that are not SMEs where, for each of the last two accounting years: i) the book debt to equity ratio has been greater than 7.5; and ii) the EBITDA interest coverage ratio has been below 1.0.
The full EU ‘undertaking in difficulty’ test does not apply to micro or small businesses. Micro and small businesses are businesses that have fewer than 50 employees and less than £9,000,000 in annual turnover and/or annual balance sheet total. Micro and small businesses must not be (a) subject to collective insolvency procedure under national law, or (b) in receipt of rescue aid (which has not been repaid) or restructuring aid (and are still subject to a restructuring plan) at the time they apply for a scheme facility.
How many lenders are accredited for RLS, and how can I find them?
A full list of accredited RLS lenders is available on the British Business Bank website and will be kept updated as new lenders are accredited.
The British Business Bank invited all lenders previously accredited under CBILS to apply to become accredited under the new Scheme.
New lenders interested in becoming accredited for the scheme are also invited to apply through the Request for Proposals.
I am not an existing customer of any of the participating lenders. Can I still apply?
RLS is open to all eligible borrowers – your business does not need to be an existing customer of the lender you are approaching.
What supporting documents might I need to apply?
You may need to provide certain documents when you apply for a RLS backed facility. These requirements vary from lender to lender, but are likely to include:
- Management accounts
- Business plan
- Historic accounts
- Details of business assets
If you do not have everything listed here, a RLS facility could still be an option to provide finance to support your business.
What checks will I be subject to?
Applicants will subject to a lenders standard credit and fraud checks.
Do I need to provide evidence that I have a viable business?
Yes. A lender must consider your business to be viable, and in making their assessment of your borrowing proposal, they have the option of disregarding any concerns over short-medium term business performance due to the uncertainty and impact of Covid-19. However, lenders are not required to overlook these concerns and all final lending decisions are fully devolved to the lender.
You must also self-certify that your business has been impacted by Covid-19.
When do I start repayments?
This will depend on a lender’s own policies and may vary between lenders. For example, some lenders may offer a Capital Repayment Holiday (CRH) for a period of time at the outset of the facility, but this is not a standard feature of RLS. The same applies for interest payments and other lender levied fees, which will be the responsibility of the borrower.
Interest payments and capital repayments will commonly start a month after taking out a facility and be monthly thereafter.
Unlike BBLS and CBILS, the government does not provide a 12-month ‘Business Interruption Payment’ for RLS.
Will details about my loan be made publicly available?
Where required, information about facilities provided to UK businesses may be publicised on a new UK Government transparency database. Details of the UK reporting requirements are currently subject to consultation, and further information will be available in due course.
In addition, for businesses in scope of Article 10 of the Northern Ireland Protocol, information will be reported to the European Commission, who may publish such details on the European Commission’s State aid transparency website.
Information that may be published is a subset of the information a business provides in their loan application, including:
- the identity of the borrower, for example, the name of your business, or potentially your name
If you are a sole trader or partnership;
- type / size of business;
- region where the business is located;
- sector in which the business operates;
- date the aid was granted; and
- the amount of aid granted.
The information reported is related to the business but may include personal data if you are a sole trader or a partnership or your business name includes reference to a natural person.
What is the difference between this new scheme and CBILS/CLBILS/BBLS?
RLS aims to help businesses affected by Covid-19 who can afford to take on additional debt finance to access the finance they need, including for managing cashflow, investment and growth. As the economy is expected to gradually recover through 2021, the new single successor scheme aims to be more targeted than the emergency Covid-19 schemes. Key differences include:
- Businesses being able to borrow up to £10m, with the scheme open to all businesses regardless of size. Minimum facility sizes will vary, starting at £1,000 for asset and invoice finance, and £25,001 for term loans and overdrafts,
- The requirement for businesses to pay interest and fees from the outset;
- All eligible businesses will be subject to standard customer credit, fraud, Anti-Money Laundering (AML) and Know Your Customer (KYC) checks.In making their assessment, lenders may, but are not required to, disregard any concerns over a business’s short-to-medium term business performance due to the uncertainty and impact of Covid-19;
- The requirement for lenders, in the absence of the scheme, to be unwilling to offer a facility on similar terms either at all, or at the same or a lower price; and
- Businesses who have taken out a CBILS, CLBILS or BBLS loan will be able to access the new scheme, although the total amount a business can borrow will depend on their lender’s assessment and scheme requirements
Can businesses still access CBILS/CLBILS/BBLS?
No. CBILS, CLBILS and BBLS, including BBLS Top-Ups, closed for applications on 31 March 2021.
New applications are no longer being accepted under these schemes.
Existing BBLS borrowers are still able to access Pay As You Grow options to help with their repayments. Further detail on available on the British Business Bank’s website or from your BBLS