Here's Everything You Need to Know About the Government-Backed Recovery Loan Scheme

As a small business, you may be feeling the effects of the pandemic more than most. Cash flow might be tight, and you may be struggling to access finance through traditional means. 

Don't fret. There's support available in the form of the Government-Backed Recovery Loan Scheme [1] (RLS). We're giving you the low-down on everything you need to know about this scheme, from what it means for your business, to how to apply and the recent changes that have been announced.

Let's get started.

What is the Government-Backed Recovery Loan Scheme?

You may remember the introduction of the Recovery Loan Scheme (RLS) was announced by the British Business Bank in April 2021 [2]. The scheme was designed to support businesses of any size as they access finance and recover from the pandemic and transition period.

So far, the scheme has helped 19,000 businesses across the UK access over £4.5 billion in finance, and it's hoped that the extension will provide vital support to businesses as they continue to recover from thepandemic [3].

Are You Eligible For the Scheme?

To be eligible for the scheme, businesses must demonstrate that they:

• are trading in the UK
• would be viable if not for the pandemic
• have been adversely impacted by the pandemic
• are not in collective insolvency proceedings (unless your business is in the scope of the Northern Ireland Protocol)

Businesses that received support under earlier COVID-19 guaranteed loan schemes are still eligible to access finance under RLS if they meet all other eligibility criteria.

What's new with the scheme?

The original scheme was due to end on 31 December 2021 but in the Budget announcement on 3 March 2021 [4], it was revealed that the cut-off date would be pushed back until 30 June 2022. Now, the Government has announced that the scheme will be extended for a further two years [5].

When discussing the extension, Chancellor of the Exchequer, Nadhim Zahawi, said: "The principle behind the extended Recovery Loan Scheme remains unchanged: Government will underwrite 70% of lender liabilities, at the individual borrower level, in return for a lender fee. Lenders must ensure that the benefits of the government guarantee are passed through to businesses.

"The maximum loan size remains at up to £2m. However, recognising that businesses and the UK more generally are now in a better position than they were during the pandemic, lenders may now require a personal guarantee from the borrower, in line with standard commercial practice."

Here's what people are saying about the scheme extension:

Chris Wilford, CBI Director of Financial Services Policy, said: "Amidst challenging economic headwinds and continued cost pressures, this remains a difficult time for business.

"With cashflow difficulties at the forefront of the minds of many business owners, continued access to Government-backed loans will bring great comfort.

"This next phase of the Recovery Loan Scheme will provide a critical lifeline for firms. The CBI will also continue to work with Government and lenders on ensuring businesses have access to the finance they need to go for growth."

Shevaun Haviland, Director General of the British Chambers of Commerce, said: "After two years of pandemic disruption and with a faltering global economy, the BCC has been calling for this continued financial support for firms. The two-year extension to the Recovery Loan Scheme will be a lifeline for many businesses facing a rising tide of costs.

"It is now essential that businesses in need of this extra support can access the scheme as quickly as possible to make sure they get help before it's too late."

Catherine Lewis La Torre, CEO, British Business Bank, said: “The British Business Bank is committed to supporting smaller businesses in accessing the finance they need to grow sustainably. Thousands of businesses in all sectors and from right across the UK have taken out loans under the Recovery Loan Scheme. This will better position them to confront both the challenges and opportunities that are ahead."

How do I apply?

The application process is relatively straightforward. You can find a list of accredited lenders on the British Business Bank website [6]. 

Once you've found a lender that you're happy to work with, you'll need to approach them directly to discuss your financing options. The lender will then assess your business's eligibility and creditworthiness in line with their own criteria.

If you're successful, the lender will offer you a loan on commercial terms. The government guarantee means that they may be able to offer you more favourable terms than if you were applying for finance without the scheme.

As with any loan, make sure that you understand the terms and conditions before signing on the dotted line. Be sure to shop around and compare offers from different lenders to ensure you're getting the best deal possible.

Some important things to note about the scheme:

• The scheme is only open to businesses with a turnover not exceeding £45m per annum
• The maximum amount of finance available is £2 million per business (maximum amount per Group limited to £6m)
• The guarantee coverage that the Government will provide to lenders is 70%