What you need to know about the Recovery Loan Scheme

April 2021 sees the launch of the Recovery Loan Scheme, first announced in the Budget last month.

The loan scheme is available through participating lenders, and is designed to provide financial support to UK businesses so they can recover and grow following the Covid-19 pandemic.

If Covid-19 has had an impact on your business, you can apply for a Recovery Loan.

This money can be used for any legitimate business purpose, including managing cash flow, or financing investment and growth.

However, you need to be able to afford to take out additional debt finance for these purposes.

The Recovery Loan Scheme is also open to businesses that have already borrowed money under any of the other coronavirus loan schemes, including the Bounce Back Loan Scheme, Coronavirus Business Interruption Loan Scheme, and Coronavirus Large Business Interruption Loan Scheme.

While open to businesses that have already borrowed money under these schemes, the amount you can borrow under the Recovery Loan Scheme may be limited.

The Recovery Loan Scheme will initially run until 31st December 2021, with this end date subject to review.

Loans will be provided by lenders accredited by the British Business Bank, with new lenders added as they become accredited.

While designed to improve the terms of loans offered to businesses, if a lender can offer a commercial loan on better terms without the guarantee of the Recovery Loan Scheme, they should do so.

As a result, business owners should first approach their own finance lender, via their website, and then consider approaching other lenders if you cannot access the finance you need.

Under the terms of the Recovery Loan Scheme, lenders can provide loans of up to £10 million as a term loan, overdraft, invoice finance or asset finance.

The lender receives a government-backed guarantee against the outstanding balance of the facility, with the borrower remaining 100% liable for the debt.

For loans of up to £250,000, the lender will not take any form of personal guarantee.

For larger loans, the lender has the discretion to decide whether or not to take personal guarantees.

However, for loans of more than £250,000, the maximum amount that can be covered under the Recovery Loan Scheme is limited to a maximum of 20% of the outstanding balance of the loan facility, after the proceeds of business assets have been applied.

In any case, no personal guarantees can be held over Principal Private Residences.

Interest and fees on these loans are paid by the businesses from the outset, with the maximum annual effective rate of interest, upfront fee and other fees no more than 14.99%.

For term loans and asset finance facilities, the terms of these loans can run from three months to six years. For overdraft facilities and invoice finance facilities, the maximum term is three years.