We are now a month into the latest government finance support scheme, the Recovery Loan Scheme (RLS), and what we have learnt? Well ….. some lenders are still determining their application processes, lenders tend to be open to their own banking customers only (particularly for term loans) and the number of accredited lenders remains a handful compared to CBILS. It’s not all bad news though – many lenders are well placed to deliver this scheme having learnt from providing the CBILS facilities so in theory it should be an easier journey for clients. We know there are number of additional lenders in the process of being accredited by the British Business Bank and this should open the market more which is essential, especially as so many SMEs now bank with challenger banks or online banks who aren’t part of the scheme.
But how do you know whether RLS is right for you, even if you can access it? Should you use it to refinance current debt?
We know many SMEs have taken a Bounce Back Loan over the past 12 months, taking advantage of the fixed 2.5% interest rate, but this only provided a maximum of £50,000 and many businesses needed more to stay afloat. Some have topped up using credit cards (an expensive way to fund working capital); some have been offered loans from friends and family. Overdrafts have also been used more, often exceeding the approved overdraft limit which certainly isn’t the best option for longer term cashflow strain. These businesses may well benefit from a RLS facility.
RLS includes more than just term loans too; there are facilities for asset finance and invoice finance too, which could provide the much-needed cashflow so many SMEs require currently. There is even an overdraft option which might provide improved terms / limits against the current overdraft facility. They are all worth considering, so ensuring that the ongoing use of debt in the business is as cost-effect as possible, and is structured appropriately to support the future needs of your business.
Lenders are quite clear that a full credit application is required, so the way in which the application is positioned will be critical to ensure a smooth submission. You will need to provide latest accounts and management information demonstrating the most recent financial position. You might also need to submit a Business Plan, outlining the impact the pandemic has had on your business, how you have adapted and what future plans you have for the business.
As a reminder here are the key features of the scheme:
- Up to £10m facility per business: Minimum facility sizes vary, starting at £1,000 for asset and invoice finance, and £25,001 for term loans and overdrafts, up to £10m.
- Turnover limit: No turnover restriction, meaning businesses of over £45m turnover are eligible.
- Range of products: Term loans, overdrafts, asset finance and invoice finance facilities will be available.
- Term length: Term loans and asset finance facilities up to six years; overdrafts and invoice finance up to three years.
- Interest and fees to be paid by the business from the outset
- Access to multiple schemes: You will be able to access this scheme even if you have taken out a CBILS, CLBILS or BBLS facility, although the maximum borrowing will depend on the lender’s assessment and scheme requirements.
- Credit checks for all applicants: Lenders will be required to undertake credit and fraud checks for all applicants and these checks may vary between lenders. Lenders may overlook concerns over short-to-medium term performance owing to the pandemic.
As ever, the devil is in the detail and lenders will be heavily scrutinising applications. The support we give clients ensures that the facility is best suited to the business and that the lenders receive the required detail on application.
If you would like any guidance from us, please contact us – speak to any team member directly or call our general number.
T: 01636 577460