One of the standout pieces of news from the recent Autumn Statement & Spending Review was the announcement of an extension to the existing Recovery Loan Scheme – extending the scheme until 30 June 2022. As the last remaining element of Covid financial support, recovery loans may well be a vital lifeline for some business clients, and the planned closure of the scheme in December 2021 was something that many providers have lobbied against.
So, now that the scheme has been extended, what does this mean for your clients’ funding plans? And why are early applications for a recovery loan the best course of action?
An extension to the Recovery Loan Scheme – but with a catch
The Recovery Loan Scheme (RLS) is something that’s close to our hearts here at Capitalise, given the success of the CBIL and Bounce Back Loan schemes. But the RLS has not been as successful as everybody hoped and that’s resulted in many of the providers lobbying for an extension to the scheme, to maximise the potential benefit to recovering UK companies.
That extension has now been granted, with qualifying companies now able to apply for a recovery loan until the end of June next year. However, there has been one small, but potentially significant, amendment to the detail of the RLS, as our CEO and co-founder, Paul Surtees, highlighted in our recent Autumn Budget session:
"The Government has extended RLS from the end of the year until 30 June 2022. But there has been one change and that’s that they’re going to decrease the amount of guarantee to the lenders, from 80% down to 70%. That change to the lender – only to the lender, it doesn’t benefit the business – is going to be active from 1 January 2022.
Now, it’s too early to say, but our prediction here at Capitalise is that this change is going to impact the lenders. They’re going to have to change their models and their frameworks. How that is therefore going to affect prices remains to be seen, and it’s the pricing that allows the lender to get accredited. So there’s a question mark over whether lenders will need to get re-accredited, which has been a challenge thus far.
So, it’s good news that the RLS has been extended, but we’re sad that the guarantee has been decreased by 10% from 80% to 70%.”
Apply before 2022 and remove that uncertainty
The big question is how this decrease of 10% in the government-backed guarantee to lenders will affect the availability of recovery loans to businesses that need this funding the most.
If prices do change, and lenders do have to apply again for accreditation, this could well remove some players from the RLS market. That would reduce the choice for your clients, and may make it more difficult for them to get the recovery loan funding that they’re looking for.
Our standpoint, at present, is that there’s real value in clients applying to the RLS before the end of the year. The scheme may still be there from January to June 2022, but the availability of recovery loans, and the attractiveness of the deals and prices offered, may well change.
With the UK’s economic stability still looking uncertain as we head into 2022, the RLS may well be a crucial lifeline to additional external funding – but the clock is now ticking.
What does the Recovery Loan Scheme offer?
Despite the current lack of take-up, the RLS is an exceptionally attractive route to funding, when you compare it to other loans that your clients may be offered.
Key benefits of a recovery loan include:
✔ £1,000 and £10 million of lending available as invoice finance or asset finance
✔ £25,001 and £10 million of lending available per business as a term loan or overdraft
✔ Extremely favourable terms for the loan, with APR capped at 14.99%
✔ No requirement for a personal guarantee (PG) up to £250k
✔ No turnover limit for applications.
Who can apply for a recovery loan?
The eligibility rules for the RLS are very similar to those for the CBIL scheme. To apply, your client must be trading in the UK, but doesn’t have to be a limited company.
The scheme is open to:
limited liability partnerships
co-operatives and community benefit societies, and
any other legal entity carrying out business activity in the UK with business activity operating through a business account.
In addition, the client needs to be able to show that their business:
would be viable were it not for the pandemic
has been adversely impacted by the pandemic
is not in collective insolvency proceedings (unless your business is in scope of the Northern Ireland Protocol in which case different eligibility rules may apply)
A good time to talk funding strategies with your clients
With the RLS back on the table as a route to external funding, and many businesses finalising their strategies for 2022, now is a great time to talk to your clients about their funding.
At Capitalise, we believe that raising, recovering and protecting your clients’ capital is the most important thing you can do to help them stabilise recovery and build for a stronger future. Alongside recovery loans, we can help you access our network of 100+ lenders and finance specialists, with experts in funding, credit improvement and debt recovery.
Set your clients on the right track for 2022 and help them achieve a positive capital position. Get in touch for a chat about accessing recovery loans and other routes to funding.
Call us on 020 3696 9700 or email us at firstname.lastname@example.org