Businesses should consider the RLS implications carefully

Can your business cope with another loan?

The latest Government initiative to help businesses to get back on their feet following the pandemic lock-downs came into effect on April 6, 2021.

The Recovery Loan Scheme (RLS) announced in the March budget is only available until December 31, 2021 and so far, just 18 lenders have signed up to participate.

They can be found here on the British Business Bank website.

Be aware that ultimately the lenders will decide whether to approve your application and not every accredited lender can provide every type of finance available under RLS.

There are some protections for borrowers in that lenders will not be allowed to take any form of personal guarantee for facilities of ￡250,000 or less. Above that amount lenders cannot include Principal Private Residences in the guarantee agreements and that the maximum amount that can be covered under RLS is capped at a maximum of 20% of the outstanding balance of the RLS facility after the proceeds of business assets have been applied.

Loans will include 80% government guarantee and interest rate cap and can be used in addition to previous loan schemes such as BBLS and CBILS.

What are the types of RLS?

• term loans or overdrafts of between ￡25,001 and ￡10 million per business
• invoice or asset finance of between ￡1,000 and ￡10 million per business

What is the maximum loan period?

• up to 3 years for overdrafts and invoice finance facilities
• up to 6 years for loans and asset finance facilities

Who is eligible?

You can apply for a RLS if your business is trading in the UK, would be viable if it were not for the pandemic and has been adversely affected by it. You cannot apply if your business is in collective insolvency proceedings.

What to consider if you are thinking about applying for a RLS

Essentially, it comes down to whether a loan would be affordable or not given the relatively short repayment terms.

Do you regularly monitor your cash flow and once your business is able to trade normally the state of your order book and overheads? What is the value of any fixed assets your business has?

Have you already taken advantage of any of the other pandemic emergency loan schemes? Will you be able to manage the repayments on top of all your other business overheads?

If your bank is one that has signed up to the scheme then it may make sense to approach them first as you already have a, hopefully good, relationship with them.

K2 Business Partners has published a number of guides to managing your relationship with your bank and these are available here

There is also a Board Briefing on the topic of your relationship with your bank here

If you are uncertain about whether to take advantage of a loan under the RLS perhaps it will help to talk it over with an experienced restructure and recovery advisor first.

Tony Groom of K2 Partners has more than 20 years’ experience in advising businesses and you can get in touch with him via a message on LinkedIn, or by calling 020 7720 8000 or emailing: [email protected].