Countdown to 30 June 2022 and the end of the Recovery Loan Scheme

Published by John Walsham on 3 May 2022

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The Recovery Loan Scheme (RLS) is due to close to new applications on 30 June 2022, but until this date businesses can still borrow these funds to support working capital, investment and to help fund future growth plans.

The scheme was launched in April 2021 and is still largely unchanged in that the Government provides a guarantee to the lender and there is no personal guarantee provided to the lender by the principals of the firm on borrowing below £250,000. Lenders are however expected to tighten lending criteria further in the future and personal guarantees will feature post RLS.

You can access the RLS if your turnover is less than £45m and for sums up to £2m per business. The scheme covers term loans, overdrafts, invoice and asset finance and it is provided by a panel of lenders accredited by the British Business Bank. For those already with BBLS, CBILS or CLBILS, you are still eligible to apply for an RLS.

Loan and asset finance facilities can be granted for up to a six year term and overdraft/invoice finance for up to three years.

So, is the RLS right for your business and should you act now to avoid missing the deadline?

To answer that question in a post pandemic world, perhaps we should change our mindset on business borrowing. It can be a cheaper way to fund growth and it should not be seen as bad if it is being used in the right way. Remember the well-known statement – ‘if it appreciates in value buy it if it depreciates in value finance it’.

Whilst there are currently many ongoing and future challenges for business owners, (rising interest rates, supply chain delays and costs, rising raw material prices, inflation and higher wage demands to name a few), their entrepreneurial spirit means many are still succeeding and planning for future growth.

The question that businesses should be asking themselves now are: Do your forecasts envisage turnover growth, increasing debtor days and or reducing credit terms that will undoubtedly put pressure on cashflow? To ease that pressure and/or invest then think about applying for the RLS before it’s too late.

As the end of the scheme draws closer we are also currently seeing many business owners who want to explore the opportunity of either refinancing funding already in place for better rates, or to remove personal guarantees as well as using the scheme to help plan cash flow for the next 12 -24months.

The RLS offers favourable terms and interest rates are capped at 14.99%. To put this in perspective, pre pandemic, unsecured lending saw interest rates of 20-25%.

We recommend that all businesses review their financing on at least an annual basis and consideration should be given to preparing your business for funding. Even if you don’t need it just yet, it shows fantastic business management. This includes things such as looking after your business credit score, knowing what it is and what can be done to improve it.

When the time comes, any borrowing proposal needs to be properly researched to ensure the right option is chosen, not just for now but also the longer term. The actual borrowing requirement needs to be backed up by comprehensive forecasts and analysis which here we can support you in this.

For those business owners concerned about or struggling to meet their borrowing commitments, it is important to remember that for Bounce Back Loans (BBLS) there are Pay As You Grow options.

Currently it is estimated 85% of all repayments are on schedule but if you are feeling the pressure then consider approaching your lender to request a capital repayment holiday and/or extension of the term over which the loan is due to be repaid.

Over a fifth (21%) of BBLS borrowers have used one or more of the Pay As You Grow options announced by the Chancellor of the Exchequer in September 2020. These give greater flexibility to businesses who wish to manage their loan repayments more effectively by offering a variety of options to restructure their repayments and make them more affordable.

While it is too early to give a definitive view of the final level of defaults, this latest data suggests that the current levels of failure to repay are lower than some illustrative worst-case scenarios presented prior to repayments commencing. These levels are, however, subject to any changes in market conditions or individual circumstances and would therefore be expected to fluctuate in the future. And remember, all businesses remain responsible for repaying facilities under CBILS, CLBILS and BBLS, and are fully liable for the debt.

Businesses should always seek advice when seeking to restructure borrowing or raising finance. Our team can help, get in touch for further information.

Contact John Walsham or Rachel Emmerson.

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