What is the Recovery Loan Scheme?
The UK government launched the Recovery Loan Scheme on April 6, 2021. Generally, RLS was provided to businesses of all sizes through various lenders that are accredited by the British Business Bank, including Funding Circle. The UK guarantees 80% of the finance to lenders; however, business owners are 100% liable to pay back the loan. RLS applications were accepted until December 31, 2021.
To be eligible for RLS loans, businesses needed to prove that they were a UK trading business that had been impacted by the pandemic. Although RLS was available for a wide variety of businesses, insurers, and reinsurers, state-funded schools, building societies, public-sector bodies, and banks were not eligible to apply for RLS.
Types of Recovery Loan Schemes
RLS was provided in four distinctive formats: Term loan, overdraft, invoice finance, and asset finance. Each of these types had a varying amount and term limits. More specifically, each UK business could get somewhere between £25k and £10m in term loans and overdrafts. But if the businesses were trying to get those finances in the form of invoice or asset finance, they would receive loans somewhere between £1000 and £10 million.
Interest Rates
Businesses were 100% liable for the borrowed debt. Additionally, borrowers were responsible for paying interest rates and any lender fees that may arise during the process. While the interest rates of the Recovery Loan Scheme vary depending on the lender, the usual average rate was 6.16% per year for up to three years. If a business wanted to get loans for over three years, the interest rate jumps to 7.06%.
For instance, if a business gets a £50,000 RLS loan and plans on returning it within a year, it will pay £4,307 per month for one year, and the total returnable amount will be £51,683.99 (including the interest rate). On the other hand, if the business decides to pay that £50,000 loan within 6 years, it will pay £853.89 per month for six years, and the total returnable amount will be £61,480.20 (including the interest rate). Concisely, monthly payments and interest rates fluctuate based on the length of the loan. The longer the business keeps the loan, the higher the interest that it will pay.
- The Recovery Loan Scheme was designed by the UK government to provide loans for struggling UK businesses because of coronavirus-induced disruptions.
- The primary aim of the RLS was to provide loans up to £10 m or up to 6 years.
- RSL was only available through lenders that were accredited by the British Business Bank and the government guarantees 80% of that loan to lenders.
- Borrowers were 100% liable for loans, and they should use those funds for business-related purposes
- The interest rate of the RLS depends on the length of the loan. The interest rate is 6.16% annually for up to three years and 7.06% annually for over three years. There may be additional fees depending on the lenders.
Advantages of the Recovery Loan Scheme
The Recovery Loan Scheme offered a unique opportunity to borrow. Your business was able to borrow anything between £25k to £10m, and there was no personal guarantee necessary on loans up to £250k. The government guaranteed 80% of the loan. It was a great option if your business had been struggling to get back on its feet post-COVID. Considering the rates of inflation, the recovery loan scheme also offered a bit of protection for small businesses.
You were able to apply for the Recovery Loan Scheme even if you had already received another government-backed loan scheme such as CBILS. Because the scheme was orientated around growth, lenders needed to see that you can afford to repay the loan and would ask for the relevant documents.
The application process was quick and easy; members of the Funding Bay team guided many businesses through all the steps and handled the entire application process. Apply for a free and quick consultation here and Funding Bay can assist with sourcing other financing needs.
