Covid Business Recovery Loan Scheme Explained

Published / Last Updated on 17/04/2021

The Government has launched the Recovery Loan Scheme as businesses emerge from Covid-19 Lockdown but how does it work?

The Recovery Loan Scheme (RLS), was announced in the March 2021 Budget.  It started on 6 April 2021 and will run until 31 December 2021  It will be administered by the British Business Bank, with loans available through banks and a network of other accredited commercial lenders.

Businesses (with any size of turnover) can access loans varying in size from £25,000, up to a maximum of £10 million (£30 million per group).

To qualify, the business must:

  • have been impacted by Covid-19
  • be carrying out trading activity in the UK
  • have a viable business proposition – a lender may disregard (at its discretion) any concerns over short-term to medium-term business performance due to the uncertainty and impact of Covid-19

A lender can provide up to £10 million (£30 million per group) as one of the following facilities:

  • Term loan
  • Overdraft
  • Invoice finance
  • Asset finance

Minimum facility sizes vary, starting at £1,000 for asset and invoice finance, and £25,001 for term loans and overdrafts.

For term loans and asset finance facilities the term is from three months up to six years. For overdrafts and invoice finance facilities the term is from three months up to three years.

The Government will provide an 80% guarantee for all loans. For those borrowing up to £250,000 the lender won’t require any form of personal guarantee. For those borrowing more than £250,000, the lender has the discretion to decide whether to take personal guarantees. However, above £250,000, the maximum amount that can be covered under is capped at a maximum of 20% of the outstanding balance of the facility after the proceeds of business assets have been applied. No personal guarantees can be held over principal private residences.

Interest rates (including finance-related fees) have been capped at 14.99% per annum, and we expect them to be much lower than that in the vast majority of cases dependent on banks underwriting of the borrowing firm.

The RLS can be used as an additional loan in addition to support received from the emergency schemes, such as the Bounce Back Loan Scheme and Coronavirus Business Interruption Loan.  However, the amount borrowed under an existing scheme may in certain circumstances limit the amount that can be borrowed under the RLS.

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