April 2020 saw the government’s launch of the recovery loan scheme (RLS), hailed as an additional avenue of support for businesses affected by the pandemic.
The coronavirus business interruption loan scheme (CBILS) and bounce back loan scheme (BBLS) provided over £70bn of finance to SMEs. CBILS and BBLS have now closed (and there are significant concerns about the scale of potential fraud in connection with these schemes).
The RLS was designed to help close the gap between those emergency measures and "business as usual". However, it has been reported in The Times that take up of the RLS has been limited – either due to appetite among borrowers or difficulty accessing the support.
It sounds great – the RLS provides up to £10m worth of credit, supported by a government guarantee of up to 80%. That guarantee should provide lenders with more confidence that they will recover the amounts owed.
Perhaps the dampened take-up of the RLS is a result of the massive amount of support already taken under CBILS and BBLS – simply that those borrowers who needed support have already received it.
It may also be that not many lenders are accredited to provide funding under RLS so far. Lenders also have discretion as to whether to offer the full £10m theoretically available, so perhaps they are not offering as much as struggling businesses would like. A list of currently accredited lenders is available from the British Business Bank website.
As a bridge between normal and emergency funding, the RLS may simply not appeal as much to businesses which have already accessed emergency funding. In addition, lenders may require a personal guarantee from the management of the borrowing entity for more significant RLS loans (i.e. loans of over £250,000).
The system is not open to all. Applicants need to demonstrate that their business would be viable but for the pandemic, have been adversely impacted by the pandemic and is not currently in certain insolvency proceedings. Perhaps some businesses will struggle to meet this evidential aspect of the application – or simply haven’t the heart to go through the process.
Jonathan Porteous, head of banking and finance at Stevens & Bolton, comments:
"As a firm, we’re not seeing the same appetite to take up the RLS as we did for the previous CBILS and BBLS. It’s difficult to say whether that’s due to RLS being less well-publicised, the potential need to provide personal guarantees for larger loans, or whether struggling businesses have already leveraged themselves as far as they see appropriate under their existing facilities. It’s certainly an interesting area and something we expect to take shape as the economy emerges from the pandemic."