Understanding the revised Recovery Loan Scheme can pay dividends says Paul McCluskey.
As the UK economy continues to face uncertainty from the COVID pandemic many UK legal practices may find continued pressures on cashflow and face the challenge of how best to fund the future requirements of the business.
In consideration of Crown Preferencing, where HMRC are now a preferred creditor ranked above banks, many firms will begin to find their bank are less willing to extend funding limits, especially where firms are already heavily indebted due to previous government support schemes. (CBILS/Bounce back loans).
To help this situation and in further support of UK businesses, the UK government has launched a new government backed loan scheme which is intended to support access to finance for UK business as they grow and recover from the COVID-19 pandemic.
The Recovery Loan Scheme (RLS) has replaced the existing Bounce Back Loan Scheme, Coronavirus Business Interruption Loan Scheme and Coronavirus Large Business Interruption.
A revised RLS scheme launched on January 1, 2022 and offers the following finance options:
Invoice Finance and Asset Finance:
• Fund from £1k to £2m
• Repayment terms of up to 3 years
Term Loan and overdrafts:
• Fund from £25,001 to £2m
• Repayment terms up to 6 years
• Personal Guarantees over £250k
• Borrowers private residence cannot be used as security
The scheme will operate through a panel of accredited lenders who have committed to making funds available. In return the government will guarantee 70% of the amount borrowed. No personal guarantees will be taken on facilities up to £250,000, and a borrower’s principal private residence cannot be taken as security.
To be accepted the business can apply funds obtained under the scheme for any legitimate business purpose (including cash flow management, growth and investment).
Businesses which have previously received support under the existing schemes will still be eligible to access facilities under this new scheme however unlike previous government schemes (CBILS/Bounce back) borrowers will be directly liable for all such interest payments and costs from the outset.
At present the RLS scheme is open to UK trading businesses however it is important to understand that the revised scheme (effective from 1st January 2022) is restricted to SME businesses only and the maximum amount that can be borrowed is capped at £2m per business.
Who can apply:
Businesses from any sector will be eligible to apply. (Except banks, building societies, insurers and reinsurers but not insurance brokers, public-sector bodies, state-funded primary and secondary schools.
What you will need to provide:
As funding is provided on an affordability basis you will need to provide the following information to a lender:
• Management accounts
• 3 months bank statements
• Business plan (new businesses)
• Historic accounts (at least 2 years)
Applicants will be required to provide evidence that they would be viable were it not for the pandemic and lenders will also wish to understand how your firm has been impacted by the COVID pandemic.
Do all lenders offer the same terms?
Accredited lenders can offer their own versions of the scheme. This means that acceptance criteria, amounts available and repayment terms will differ between lenders.
How Do I find Out More?
The British Business bank has issued a comprehensive FAQ document which can be found at https://www.british-business-bank.co.uk/ourpartners/recovery-loan-scheme/faqs/
If you need support get in touch with your bank or an accredited scheme funder. If you are unsure which funder can offer the best terms for your specific needs, speak to a trusted finance broker who can search the market and provide you with suitable options.
Paul McCluskey is the Managing Director of Gemstone Legal which specialises in law firm banking, finance and risk management. Paul is a Law Society approved Lexcel assessor and consultant. He also operates an FCA regulated finance brokerage specialising in law firm finance.