The pandemic has seen its fair few shares of government schemes, incentives, and grants, with plenty directed towards businesses struggling. With the Coronavirus Business Interruption Loan Scheme and the Bounce Back Loan Scheme now closed for applications, the Recovery Loan Scheme is the primary government business loan scheme being used to help companies and firms.
The RLS can grant a maximum of up to £10 million available per business. The actual amount offered, and the terms are at the discretion of participating lenders. The government guarantees 80% of the finance to the lender. As the borrower, you are always 100% liable for the debt. Loans are available through a network of accredited lenders, set out by the British Business Bank.
To be eligible for the RLS, your business must be trading in the UK. You must also show that your business:
- would be viable were it not for the pandemic.
- has been adversely impacted by the pandemic.
- is not in collective insolvency proceedings.
We spoke to Nordens’ Head of Corporate Finance, Darren Hahn, on the impact of the RLS and its extension, alternative funding options for businesses, as well as how to put yourself in the best possible position during the unpredictability we live in…
The British Business Bank recently announced that the Recovery Loan Scheme has passed a significant milestone of offering over £1billion to smaller UK businesses. Do you think the Recovery Loan Scheme has done enough for small start-ups and SMEs to curb insolvency and unemployment?
Yes, absolutely. For me, it definitely is not as beneficial as the CBILS (Coronavirus Business Interruption Loan Scheme) or BBLS (Bounce Back Loan Scheme) but there were, and still are, a lot of businesses struggling as a result of COVID-19. At the time these schemes are now closed, so to have a follow up scheme (RLS) to support SMEs has been hugely beneficial, especially now it has scheme has been extended.
The impact on businesses throughout the pandemic has resulted in a lot of start-ups due to redundancies, downsizing, acquisitions, as well as people aiming to follow their dreams. This has been amazing to see, however I do not feel enough has been done for these burgeoning businesses who are looking to build something new in a very difficult time.
How difficult have you found the Recovery Loan Scheme applications and what has the success rate been?
The application process itself has been straightforward and is in fact similar to that of the CBILS. With the success of the CBILS however, there has been less enquiries and less take up on the RLS since it’s been open for applications as of the 6th April 2021. With lenders encouraged to offer their own products along side the RLS, often working out to be more lucrative than the RLS, there has been a lot more success rate with the ‘normal’ funding options excluding the RLS.
I think this is vitally important for businesses to consider as quite often by seeking alternative resources, you could be acquiring a better deal that’s more fluid and flexible to your personal preferences.
In your opinion, are there any better options for small businesses looking to borrow, perhaps with lower interest rates than the Recovery Loan Scheme?
Just like I’ve said above, lenders own products. Most, if not all, of the lenders that are offering the Recovery Loan Scheme will have a cheaper alternative. This is highly important to know. It would not be government backed but it will be cheaper allowing for a more affordable option and a way forward for your business.
The RLS is also restricted in terms of funding products, however lenders will be able to offer non-RLS products that could be more suitable to the funding needs and requirements of the client. Whilst I’m a fan of the RLS, I do firmly believe not to put your eggs in one basket when it comes to something as important as finding funds for your business to thrive.
I always advise for anyone who thinks they may need funding or contemplating the idea, to get in touch with us and we’ll help delve through your information to source you the best options for your business.
Are you in favour of the Chancellor’s expected six-month extension to the Recovery Loan Scheme? Will it not just end up in the taxpayer paying more over the long-term?
Although we are trying to get back to normal, COVID is admittedly still having an impact on a lot of businesses. I think it’s positive news that the scheme has been extended. This will give businesses a chance to look inwards and assess whether they need additional funding which in some cases could be the difference between a business collapsing or surviving.
A lot of companies and firms made use of the CBILS and BBL, which featured an interest and repayment free period of 12 months, which I believe will have the longer-term impact on the taxpayer inevitably.
There is also a more stringent eligibility criteria for the RLS, as well as no 12-month interest free/repayment free period. With lenders offering more lucrative products, I think there will be less impact on the government and therefore taxpayers in the future.
What is the core piece of advice you say to small businesses who require a lifeline to stay afloat amidst an unstable economy?
Forecasting and scenario planning for sure. This will allow you to know what you need, when you need it, how much you need it, if you even need it all at all, as well as what to do if a particular scenario were to happen in your business what affect will it have.
I have seen many businesses think they don’t need any funding support because they didn’t forecast and thought everything was fine, which in fact turned out to be detrimental to their business. I have seen just as many businesses take and acquire funding because they thought they needed it when they didn’t and as a result, they have paid high interest for no reason which also has a huge negative effect on your business and cashflow.
Understanding what the short to medium term future looks like for your business is key and should always be studied in detail.
We hope this has outlined to you the ins and outs of the Recovery Loan Scheme (RLS), as well as the benefits of other lending options for businesses. If you require any further information on the RLS and other lending options, or anything accounting related for that matter, please don’t hesitate to get in contact with us at Nordens where one of our trusted advisors would be happy talking you through your query.