What is the Recovery Loan Scheme?
The UK government launched the Recovery Loan Scheme on April 6, 2021. Generally, RLS is provided to businesses of all sizes through various lenders that were 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. At this moment, RLS applications are accepted until 31 December 2021.
To be eligible for RLS loans, businesses need to prove that they are a UK trading business who has been impacted by the pandemic. Although RLS is available for a wide variety of businesses, insurers and reinsurers, state-funded schools, building societies, public-sector bodies, and banks are not eligible to apply for RLS.
Types of Recovery Loan Scheme
RLS is provided in four distinctive formats: Term loan, overdraft, invoice finance, and asset finance. Each of these types has a varying amount and term limits. More specifically, each UK business can get somewhere between £25k and £10 m term loans and overdrafts. But if the businesses are trying to get that finances in the form of invoice or asset finance, they will receive loans somewhere between £1000 to £10 m.
Businesses are 100% liable for the borrowed debt. Additionally, borrowers are responsible for paying interest rates and lender fees that may arise during the process. Whilst the interest rates of the Recovery Loan Scheme vary depending on the lender, the usual average rate is 6.16% per year for up to three years. If a business wants to get loans for over three years, the interest rate jumps up to 7.06%.
For instance, if a business got a £50,000 RLS loan and is planning 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 rate fluctuate based on the length of the loan. The longer the business keeps the loan, the higher interest that they will pay. .
- The Recovery Loan Scheme is designed by the UK government to provide loans for struggling UK businesses because of coronavirus-induced disruptions.
- The primary aim of the RLS is to provide loans up to £10 m or up to 6 years.
- RSL is only available through lenders that were accredited by the British Business Bank and the government guarantees 80% of that loan to lenders.
- Borrowers are 100% liable for loans and they should use those funds for business-related purposes
- 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 offers a unique opportunity to borrow. Your business is able to borrow anything between £25k to £10m, and there is no personal guarantee necessary on loans up to £250k. The government guarantees 80% of the loan. It is a great option if your business has been struggling to get back on its feet post covid. Considering the current rates of inflation, the recovery loan scheme also offers a bit of protection for small businesses.
You are able to apply for the Recovery Loan Scheme even if you have already received another government-backed loan scheme such as CBILS. Because the scheme is orientated around growth, lenders will need to see that you can afford to repay the loan and will ask for the relevant documents.
The application process is quick and easy, and a member of the Funding Bay team can guide you through all the steps and handle the entire application process. Apply for a free and quick consultation here. You will be able to access the scheme in no time at all.