The Recovery Loan Scheme is a lifeline for small and medium-sized businesses. It was introduced on 6th April 2021, designed to support businesses of all sizes in navigating uncertain economic times. Since its inception, the government has extended the scheme three times, introducing some changes along the way.

The government recently extended the Recovery Loan Scheme’s lifeline until June 2024.

The Recovery Loan Scheme (RLS) emerged as a government response to COVID-19’s impact on businesses. It stepped in for two previous schemes: the Coronavirus Large Business Interruption Loan Scheme and The Bounce Back Loans Scheme. It now has a third version and eligibility criteria and application processes have shifted. As of 2023, you’ll find it available through a select group of lenders. Here’s what the scheme brings to the table:

  • Up to £2 million per business group
  • Up to £1 million for business groups under the Northern Ireland Protocol

The New Recovery Loan Scheme (RLS)

If you’re eyeing a recovery loan in 2023, you’ll notice that your options are limited. RLS loans aren’t on the table for most folks, thanks to the British Business Bank’s strict lender approval process.

The new RLS iteration, otherwise known as RLS 3.0, maintains its support for businesses but with some notable changes. Under the latest rendition, lenders must first extend their own lending products. Moreover, the RLS primarily targets businesses that wouldn’t meet typical lending criteria. Factors like business credit score, trading history, turnover, or homeownership status can naturally impact eligibility and conditions.

Lenders will only offer you an RLS loan if you fall short of their usual business loan criteria. This means the scheme is less accessible than in previous years.

How Does the Recovery Loan Scheme Operate?

The Recovery Loan Scheme steps up to help small and medium-sized businesses secure the financing they need to thrive and invest. The funds can serve various purposes, from managing cash flow to fuelling investments.

Here’s what’s on offer:

  • Up to £2 million per business group.
  • Up to £1 million for business groups affected by the Northern Ireland Protocol.

The actual amount you secure hinges on the lender’s decision. Four types of finance are currently available under the RLS:

  1. Term loans (£25,001–£2 million, up to 6 years)
  2. Overdrafts (£25,001–£2 million, up to 3 years)
  3. Invoice finance (£1,000–£2 million, up to 3 years)
  4. Asset finance (£1,000–£2 million, up to 6 years)

The government backs 70% of the finance, but remember, you’re fully liable for the debt as the borrower. Approved lenders, listed on the British Business Bank’s website, offer RLS loans. However, due to scheme changes, most lenders now offer RLS alongside standard business loans.

It’s worth noting that lenders may request personal guarantees for facilities of any size, but your primary residence can’t be used as security.

What’s the Loan Duration for RLS?

The duration of your facility hinges on the finance type:

  • Loans and asset finance: Up to 6 years
  • Overdrafts and invoice finance: Up to 3 years

Who’s Eligible for RLS?

If your UK-based business has a turnover of £45 million or less and is viable (i.e. not in any kind of financial or operational difficulties), you might be eligible. Almost any SME can apply, with the exceptions of banks, building societies, insurers, and state-funded schools.

All applicants must pass lenders’ standard credit and fraud checks. As long as you clear these hurdles, you could be eligible.

The Pros and Cons of the Recovery Loan Scheme

The Recovery Loan Scheme (RLS) brings some clear advantages:

  • It fuels business growth and investment.
  • Loans are accessible through approved lenders.
  • Varied financing options are available.
  • The government provides lender guarantees, reducing risk.

However, there are a few disadvantages:

  • Meeting lender criteria and passing credit checks is a must.
  • RLS funds are not grants; you’re fully responsible for the debt.
  • Funding might not suffice for larger enterprises.
  • Interest rates can be higher than traditional business loans.
  • The scheme has an expiration date, and its future is uncertain.

We hope this has outlined to you the details behind the Recovery Loan Scheme 3.0. If you’d like to know any further information, or anything accounting-related, please do not hesitate to get in touch on 01992 642024.