Is your client eligible for the Recovery Loan Scheme?
This article is part three of a four-part series from Allica Bank’s Government Lending Scheme Manager David Holdstock about the Recovery Loan Scheme. See also An expert’s guide to the Recovery Loan Scheme and Recovery Loan Scheme: myths, misunderstandings, and more.
The Recovery Loan Scheme (RLS) is a fantastic initiative by the British Business Bank to help banks support more small and medium-sized businesses as they look for the finance to invest and grow.
It enables accredited lenders to lend beyond their existing credit appetites, meaning businesses that may not have been able to access funding before could now have the opportunity to do so.
And the eligibility criteria are actually much simpler than you may think. So, what businesses can be eligible for a Recovery Loan Scheme loan?
Let’s take a look.
The key criteria – defining an ‘SME’
The Recovery Loan Scheme is designed exclusively for banks lending to SMEs – and the scheme defines an SME as any business, including sole traders and partnerships, with a group turnover not exceeding £45 million.
In most cases, employee count and business age aren’t taken into consideration by the British Business Bank when defining what is and what isn’t an SME. However, the lender themselves may have their own criteria.
You don’t need to be in recovery
A significant change to the latest iteration of the RLS is that a business no longer needs to be in recovery to be eligible. The aim of the scheme is now to encourage businesses to grow and invest.
This opens up a whole new world of opportunity for all kinds of businesses that may not have existed before.
What about location?
The borrower needs to be trading in the UK and have its core business operations in the UK. RLS is designed to support trade and commercial activity in the UK itself, so this shouldn’t be a huge surprise!
To be clear, this doesn’t mean that the businesses must only sell in UK. They can still be eligible even if the majority of their income is from exporting overseas.
How much can businesses borrow through the RLS?
British businesses can borrow up to £2 million from banks using loans supported by the scheme.
If you’re caught under the NI Protocol, that figure reduces to a maximum of £1m.
The total amount a business can borrow could possibly reduce based on any subsidies the business has taken (e.g. agricultural, fisheries/aquaculture and road freight haulage subsidies).
For how long can I borrow through the RLS?
The previous two iterations of the scheme were open for shorter periods of time, however this latest iteration of RLS (launched in August 2022) runs until 30 June 2024.
The current iteration of the scheme offers terms as long as six years, which means businesses could secure novel funding that runs until 2030!
Business liability and the government guarantee
The RLS is not a risk transfer to the government. The borrower is still 100% liable and the government guarantee is to the lender, not the borrower.
The government guarantee is a last-line assurance to the bank. This guarantee helps lenders offer products that are outside their usual risk appetite. This unlocks new avenues of lending for businesses.
Using the Recovery Loan Scheme
Meeting the above eligibility criteria does not guarantee that your client will be accepted for a loan backed by the Recovery Loan Scheme. However, the headline fact is that loans backed by the RLS can be available to more businesses than many realise. Despite the name, they’re not only open to those businesses that have been affected by the covid pandemic – in fact now quite the opposite!
If you’d like to explore how the Recovery Loan Scheme could help you client, an Allica Bank relationship manager will be happy to speak with you.
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