How the government’s recovery loan scheme can help your business bounce back from the pandemic

The coronavirus pandemic has, and continues to affect businesses in all sectors from hospitality to entertainment.

Whilst the government’s furlough scheme and other fiscal stimulus measures have managed to help ensure that many businesses have been able to continue to operate through the pandemic, with the final restrictions soon set to be lifted, some of this support is coming to an end.

Aware that both larger corporations and small medium enterprises (SMEs) might still need some help during the transition to a post-pandemic economy, the government has created the Recovery Loan Scheme (RLS), which is designed to help provide access to finance for businesses during the recovery period.
 

How has the coronavirus pandemic impacted businesses?

In March of last year, Prime Minister Boris Johnson announced what would be the first of several national lockdowns, which forced all non-essential businesses to shut their doors.

The financial implications of these lockdowns were far-reaching and severe. Whilst the government took steps to protect jobs and support businesses during these lockdowns, SMEs have by and large suffered the brunt of the impact.

In terms of turnover, there is a clear discrepancy between performance and businesses size, in fact ‘on average, SMEs have lost £15,673 each, up from the initial estimate of £11,779 last year’.

As we slowly emerge from the pandemic, it is not just the short term impact we should be wary of, but what lies beyond.  As Paul Goodman, Managing Director of Partner firm Goodman Corporate Finance said: 

“Like any financial crisis, cash flow and working capital issues arise very quickly as the economy starts to recover.  It is crucial to survival that you check and monitor your business’ short- and medium-term cash requirements.  Businesses tend not to go bust because of short term losses; they go bust invariably because they have run out of cash”.

It’s estimated that 61% of small business owners have had serious financial concerns at some point during the course of the pandemic, and so these are the businesses for which the RLS could be most crucial.
 

What is the Recovery Loan Scheme?

The government’s recovery loan scheme (RLS) was announced in Chancellor Rishi Sunak’s Budget in March, before being launched at the beginning of April to help provide financial support to businesses affected by the coronavirus pandemic.

The RLS will initially be available through a number of accredited lenders and up to £10 million is available per business.

The government has guaranteed 80% of the finance to the lender, though as the borrower you are 100% liable for the debt.

The loans will be up to 3 years for overdrafts and invoice finance facilities, and up to 6 years for loans and asset finance facilities.

To apply for the scheme, you need to show that your business is trading in the UK, along with evidence your business has been ‘adversely impacted’ by the coronavirus pandemic.

If your business has already borrowed from any other coronavirus loan schemes the RLS is still open to you, however the amount you have borrowed from other schemes may limit the amount you can borrow from RLS.

The scheme is currently expected to run until the 31^st of December 2021, though this is subject to review by the UK government. 
 

How does the RLS compare to previous schemes?

The Recovery Loan Scheme follows the Coronavirus Business Interruption Loan Scheme (CBILS) or Bounce Back Loan Scheme (BBLS), which were previously offered to businesses before 31 March 2021.

RLS differs from the previous schemes in that it will not be quite so comprehensive as CBILS or BBLS in terms of direct government support, but instead will provide many businesses with more access to finance.

Peter Black, Chief Executive of Snowball Alternative Finance, comments:

‘Whilst the Recovery Loan Scheme does not offer the key benefits of CBILS or BBLS such as interest and fees paid by government for a period of time and capital repayment holidays, the scheme will still be useful to those that have not taken any CBILS funding or not taken their full allocation.

‘For businesses looking to move from stability to a recovery and growth strategy then the 80% government guarantee to the lender may open certain lending doors that may not have been open and available without the guarantee.’

Like with CBILS, RLS loans will also be evaluated by lenders, though a full credit assessment and appraisal of financial records to ensure that businesses will be able to repay anything borrowed, making them more stringent than BBLs.

If you have already received a loan via CBILS or BBLs , your business is still eligible to apply for the Recovery Loan Scheme, with any cheaper funding via one of these other schemes remaining protected.

Despite the lifting of restrictions, many businesses will need to maintain a cautious approach to how they operate and trade in the coming months and the new Recovery Loan Scheme could provide a vital source of funding for firms, as they seek to rebuild their businesses and hopefully boom in a post-pandemic world.