Use cases for the Recovery Loan Scheme
This article is part four of a four-part series from Allica Bank’s Government Lending Scheme Manager David Holdstock about the Recovery Loan Scheme. See also: Is your client eligible for the Recovery Loan Scheme? An expert’s guide to the Recovery Loan Scheme and Recovery Loan Scheme: myths, misunderstandings, and more
Despite the name, Recovery Loan Scheme (RLS) loans can be used for all sorts of reasons – not just recovery. And certainly not just recovery from the COVID-19 pandemic. The most recent iteration has in fact removed all mention of covid from its requirements when assessing who is eligible for an RLS loan.
Yet, from my conversations with business owners, it’s become clear that this message hasn’t quite gotten through. Many people don’t realise that they could be eligible for an RLS-supported facility through an RLS-accredited lender, or that it could help them achieve their next stage of growth. Making your clients aware that they could get lending they may not have been able to before, could be a fantastic way to add value to your client relationships.
For a full overview of RLS eligibility, have a read of our guide. However, I want to share some examples of use-cases of how Allica Bank customers have used loans backed by the RLS to help you get a picture of how your business clients might be able to do so, too.
Funding mergers and acquisitions
In the current environment, many business owners are thinking about exiting their business.
Acquisitions can be a grey area for commercial lending, but the Recovery Loan Scheme can bring these kinds of deal into the credit appetite of many lenders, including Allica.
The other positive is that, typically, acquisition deals are termed over a maximum of two-to-three years, but RLS loans can run for as many as six years.
The Recovery Loan Scheme may make it that little bit easier on your clients’ cashflow when funding mergers and acquisitions.
Improving cash flow
Asset refinancing is a critical lever for businesses to open up cash flow. If a business needs a longer operating runway, capital for wages, or just more cash in the bank, an RLS loan could help them do that.
The (maximum) six-year terms are more favourable than many commercial finance products and the guarantee could allow lenders to extend their risk appetite (within reason) to include more asset refinance options. There is no guarantee that a business will be approved for lending, but the RLS gives lenders more grace to work with.
It’s worth reiterating here that the government guarantee on RLS loans is to the lender, not the borrower. That means that SMEs with an RLS facility will remain 100% liable for repaying the debt.
Business investment (including for buying new assets)
As I said before, the Recovery Loan Scheme is no longer just about recovery – it can also be about upward trajectory! This is, in fact, the most common reason Allica has used the RLS to support our business lending.
For example, we recently helped a Scottish family-owned scaffolding business that had just won a major new contract buy the new scaffolding equipment needed to deliver on the opportunity. Bought using asset finance, Allica wouldn’t have been able to lend to the customer against such assets without the help of the RLS.
We have also been able to launch a five-year interest-only commercial mortgage. It means those businesses that previously may not have been in the right place to buy their premises could now consider doing so. Or those businesses that already do can consider releasing capital from their premises to invest in other parts of their business.
For businesses that want to grow, the RLS could mean they can get that sooner than they initially thought.
Allica has also seen many businesses use loans backed by the RLS to help them improve their sustainability. Earlier this year, we provided asset finance to a family-run manufacturing business to buy £85,000 of solar panels. The rapidly expanding business said they would be able to reduce their energy bills by 50% through the investment.
We also helped a business who themselves help their clients be more sustainable. The firm, which is a designer, manufacturer and supplier of battery-powered generators for large blue-chip companies, needed to purchase an additional hybrid battery generator to meet additional orders.
In both cases, we wouldn’t have been able to fund this kind of asset without the support of the RLS.
Refinancing debt (including CBILS loans)
Refinancing debt (including Coronavirus Business Interruption Loan Scheme loans) is appealing for many businesses right now.
Given the current economic environment, some businesses might not be in the financial position they hoped. Restructuring CBILS debt (or other debt, for that matter) with an RLS loan can extend the repayment window and ease some pressure on businesses in a volatile market.
Many more opportunities to find
These are just a few examples of how RLS is being used to help Britain’s businesses flourish and grow. There are plenty more ways the RLS can be used and I encourage you to keep the RLS in your mind when speaking to clients about their options.
By allowing us to expand our product range and appetite, RLS is helping us serve customers in new ways and stimulate growth where we couldn’t before.
To speak to an Allica Bank relationship manager about how your client might be able to benefit from the Recovery Loan Scheme, click below.
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