Finance · 30 March 2021

Recovery Loan Scheme: What do we know about the CBILS Replacement?

During the budget, RishI Sunak announced the successor to the CBILS and BBL schemes, which end on 31st March.

The new scheme, called the Recovery Loan Scheme will open for applications from 6th April and is set to run until 31st December. As with furlough and CBILS, an extension isn’t out of the question.

Once again, the government will be offering accredited lenders a guarantee for 80% of the loan. This makes your finance more likely to be approved, as the lenders risk of financial loss should you default is dramatically reduced.

What lending is available?

The scheme is in place to fund businesses who have been impacted by the COVID-19 pandemic. The funding can be broken down into the following areas:

  • Business loans
  • Overdrafts
  • Invoice finance
  • Asset finance
Business loans and asset finance facilities will have a maximum term of 6 years. These facilities are available from £25, 001 up to £10, 000, 000. Overdrafts and invoice finance facilities are limited to 3 years and can be taken from £1, 000 up to £10, 000, 000.

What is the eligibility criteria?

The scheme is available for businesses who are trading in the UK and have been impacted by the coronavirus pandemic. The only caveats are that the business must have been viable had it not been for the pandemic and cannot be in insolvency proceedings. There is no minimum turnover or minimum trading history requirements. Of course, each lender will have their own set criteria, which must be met for a loan to be offered.

Which lenders will be offering loans through the Recovery Loan Scheme?

This is one area in which information is in very short supply. The list of accredited lenders hasn’t been confirmed yet. As soon as the lenders are announced, they will appear on the British Business Banks dedicated page.

Will the government still cover the interest for the first 12 months of the loan?

No, this is one of the biggest changes between the 2 schemes, with these new schemes, monthly repayments will be due from the beginning of the loan and the government will not cover any of the interest. This is a change in approach from the government, who clearly see this as a scheme for businesses who will be able to trade profitably going forward, without a grace period.

Will I be eligible for this scheme if I’ve already benefitted from a CBILS or Bounce Back Loan?

Yes, this is another big difference between this scheme and CBILS. Whereas a business would have to repay any bounce back loans before taking out a CBILS loan, these loans can be taken in addition to any BBL or CBILS loans. This is of course, subject to both loans being affordable.

What security is required?

Unlike most types of unsecured borrowing for businesses, there will be no personal guarantees will be taken on facilities up to £250, 000. In addition, a borrower’s home cannot be taken as security.

How will the scheme benefit my business?

The biggest benefit, given the information currently available is the ability to raise funds for a business which would otherwise be unable to secure funding. Under this scheme, lenders will be more inclined to look past a difficult trading period due to the pandemic due to the guarantee offered by the government. There is another major benefit in that the ability to take out further borrowing without having to repay any low rate Bounce Back Loans. This was a real barrier to many who needed further borrowing, but didn’t want to repay debt at such a low rate with debt at a higher rate. This should help to stimulate more demand for borrowing across SMEs. That money will ultimately come back into the economy, stimulating a stronger recovery from the pandemic.

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Acting as Commercial Lending Director at ABC Finance, Gary Hemming has over 15 years experience in financial services and specialises in bridging loans, commercial mortgages, development finance and business loans.