The Recovery Loan Scheme (RLS) launched on April 6 2021. The scheme, which replaces the CBILS, CLBILS and BBLS, is currently set to run until December 31, subject to review.
You can apply for finance through the RLS if your business has been impacted by the pandemic: it’s specifically designed to enable business owners to support their plans with additional funding as the nation enters a period of recovery following the lockdown.
You can use your RLS loan for any legitimate business purpose. For instance, you might use it to purchase a piece of necessary equipment or hire a member of staff to meet an increase in demand, or to manage cash flow as you reopen your premises.
Although the RLS has its benefits, it’s certainly not the only finance option on the table.
In fact, the British Business Bank – the organisation in charge of accrediting lenders for the scheme – states that ‘a key aim of the Recovery Loan Scheme is to improve the terms on offer to you, but if a lender can offer you the choice of a commercial loan on better terms, without requiring the guarantee provided by the RLS, they should do so.’
How does the RLS compare to the previous scheme?
Although the RLS is essentially a follow-up to the CBILS, there are more differences than similarities between the two. For example, one of the main benefits of the CBILS was that the Government covered the first year of interest on the borrower’s behalf.
“…if a lender can offer you the choice of a commercial loan on better terms, without requiring the guarantee provided by the RLS, they should do so.”
This isn’t the case with the RLS, however it does have other plus points. The fact that the applicant doesn’t have to meet a minimum/maximum annual turnover makes it’s more accessible for a start. Also, businesses can apply for up to £10 million in finance as opposed to £5 million.
|Coronavirus Business Interruption Loan Scheme (CBILS)
|Recovery Loan Scheme (RLS)
|£50,001 - £5 million
|£25,001 - £10 million
|Up to 10 years
|Up to 6 years
|Government pays first 12 months' interest on your behalf
|Government pays upfront fee on your behalf
|No personal guarantees required on loans up to £250,000
|Minimum trading history
|Minimum annual turnover
Image source: Funding Options
How many loan types are available under the scheme?
Four finance types are available under the RLS: term loans, overdrafts, asset finance and invoice finance facilities.
When it comes to asset finance and invoice finance facilities under the RLS, the minimum amount you can apply for is £1,000. Term loans and overdrafts start at £25,0001. Term loans and asset finance facilities are available for up to six years, and overdrafts and invoice finance facilities are available for up to three.
Who’s offering the RLS?
The RLS is available through a variety of British Business Bank-accredited UK lenders, including high street banks and alternative business finance lenders. The RLS is open to you if you’ve borrowed from any of the previous schemes. However, the amount you borrowed previously might affect how much you’re eligible for.
What other Alt-Fi finance types are available?
Again, the RLS is by no means the only finance option out there for businesses to leverage as the nation emerges from the lockdown, and you may be eligible for a facility with more favourable terms.
If you’re looking to manage your cash flow or fund growth, you could consider the following:
1. Revolving credit facility
Revolving credit facilities allow you to access finance when you need it and you only pay interest when it’s used. It’s a flexible type of finance that you can tap in and out of on an as-needed basis. They’re convenient for those times when you need a quick cash boost. As with business credit cards and overdrafts, you’ll have a credit limit.
2. Asset finance
Purchasing a new vehicle, machinery or equipment outright can be too expensive for many SMEs, which is where asset finance comes in.
Asset finance enables you to spread the cost of the purchase over a longer term, and you can even upgrade to a newer model at the end of it. If you decide to buy an asset before March 2023 , you could also benefit from the super-deduction tax break.
3. Invoice finance
Invoice finance lets you borrow money based on what your clients owe so that you receive the funds quicker. After invoicing your customers/clients, you pass the information on to the finance provider who pays you an agreed percentage. Once the customer pays the invoice, you get the rest of the funds minus the lender’s fee.
4. eCommerce finance
Lots of eCommerce businesses require funding for growth at the moment. Fortunately, there are alternative lenders out there with an appetite to lend to businesses that need a working capital boost in the form of fast business loans and working capital finance. If you import goods from abroad and need funding, trade finance could also be an option.
5. Merchant cash advance
Non-essential businesses, gyms, pubs and others are set to reopen on 12 April, and many will be looking for flexible finance as they get back on track.
If you take customer card payments either online or on your premises, you might be eligible for a merchant cash advance. These advances provide you with a sum which you pay back incrementally through your customer’s card transactions.
6. Early repayment business loans
Short-term business loans are designed to help businesses access the finance they need until they can pay it back or refinance the debt. One of the main benefits is the quick approval process, making it a convenient option for those who can’t afford to wait.
Funding Options processed over £760M in CBILS loans over the last financial year. You can use their platform to apply for RLS finance as well as the many other alternative finance options out there today. The Funding Options team can help you find a solution that’s best suited to your business’ needs.