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Recovery Loan Scheme extended for two years: All you need to know

21/07/2022

The government has confirmed that the Recovery Loan Scheme (RLS) will be extended for a further two years – with a few modifications to how it works.

In an announcement made yesterday, Business Secretary Kwasi Kwarteng said: “The extension of the Recovery Loan Scheme will help ensure we continue to provide much-needed finance to thousands of small businesses across the country, while stimulating local communities, creating jobs and driving economic growth in the UK.”

The RLS replaced the Bounce Back Loan Scheme, Coronavirus Business Interruption Loan Scheme and Coronavirus Large Business Interruption Loan Scheme in April 2021, and helped 19,000 businesses to secure funding to assist with their recovery from the pandemic.

After it was extended for a further six months at the end of 2021, with applications staying open until 30 June 2022, businesses with a turnover of up to £45 million could apply for up to £2 million under the scheme, with the government guaranteeing 70% of the amount borrowed. It also stipulated that no Personal Guarantees could be taken on borrowing of less than £250,000. For amounts higher than that, Personal Guarantees were capped at 20% of the outstanding balance of the facility after the proceeds of business assets have been applied.

What’s changing?

While the exact details and criteria are yet to be confirmed, it is understood the scheme will reopen on 1 August 2022 and run until 30 June 2024.

The maximum loan size will remain at £2 million, to be provided through term loans, overdrafts or asset or invoice finance facilities, with the government continuing to guarantee 70% of the amount borrowed to encourage participating lenders to support businesses.

However, lenders may now require a personal guarantee from the borrower, which the government says is in line with standard commercial practice and recognises that “businesses and the UK more generally are now in a better position than they were during the pandemic”.

The extension is partly due to the ongoing cost pressures on businesses, which are placing a heavy burden on cash flow for many.

What other support is available?

It’s important to state that just because the RLS has been extended, it may not be the only or most suitable option for every business that requires external funding.

However, it does mean it’s a good time for businesses to review their finance needs to ensure they can meet fluctuations in working capital and cash flow.

The most appropriate option will ultimately be different for every company and be determined by the reasons funding is required, the company’s immediate challenges and its goals over the short, medium and long term.

It will also depend on the assets of the business, as commonly it can be more beneficial to unlock cash that’s already tied up in the value of a company’s assets than to secure a loan. This is one of the key criticisms of the government-backed schemes, which have focused on loans and left many with thousands, if not millions of pounds to pay back over a number of years. Inevitably, this will hamper their ability to take advantage of the recovery.

Take, for instance, a business whose cash flow has been eroded by higher input costs and the rising price of energy and fuel. A loan or overdraft would provide an immediate cash flow boost, but the monthly repayments could themselves create challenges.

Should that business sell to customers on credit terms, however, an invoice finance facility could alleviate many of the cash flow issues by providing access to up to 90% of the value of invoices within 24 hours of their issue, providing the means to fulfil orders, pay suppliers and meet day-to-day costs ahead of being paid by customers.

Or, should that business have significant stock reserves, an asset based lending facility could release cash against that stock to provide an immediate cash flow boost, and even unlock further funding against other assets such as plant, machinery, equipment and the sales ledger.

The key thing is for businesses who are either facing cash flow challenges currently, or expect to in the near future, to explore their options as early as possible so that the right solution can be identified and put in place in good time.

If you’re concerned about the impact of rising costs on your business and cash flow, or you would like to explore whether your existing facilities are the most suitable, we would be happy to help. A commercial finance broker with 25 years’ experience, we can introduce you to the right combination of lenders and funding products to give your business the tools it needs to excel. To speak to our team, please call 0800 9774833, request a call back or contact us via live chat.

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