Recovery Loan Scheme - Asset Based Lending

The new iteration of the Recovery Loan Scheme (RLS) launched in August 2022 and is designed to support access to finance for UK small businesses as they look to invest and grow.

The Recovery Loan Scheme aims to improve the terms on offer to borrowers. If a lender can offer a commercial loan on better terms, they will do so.

Businesses that took out a CBILS, CLBILS, BBLS or RLS facility before 30 June 2022 are not prevented from accessing RLS from August 2022, although in some cases it may reduce the amount a business can borrow.

Recovery Loan Scheme-backed facilities are provided at the discretion of the lender. Lenders are required to undertake their standard credit and fraud checks for all applicants.

Scheme features include:

Up to £2m facility per business group
The maximum amount of a facility provided under the scheme is £2m per business group for borrowers outside the scope of the Northern Ireland Protocol, and up to £1m per business group for Northern Ireland Protocol borrowers. Minimum facility sizes vary, starting at £1,000 for asset and invoice finance, and £25,001 for term loans and overdrafts. A borrower in scope of the Northern Ireland Protocol may borrow up to £1m per business group, unless such borrower operates in a sector where aid limits are reduced, in which case the maximum that can be borrowed is subject to a lower cap. These include agriculture, fisheries / aquaculture and road freight haulage.

Term length
Term loans and asset finance facilities are available from three months up to six years, with overdrafts and invoice finance available from three months up to three years.

Interest and fees to be paid by the borrower from the outset
Businesses are required to meet the costs of interest payments and any fees associated with the RLS facility.

Access to multiple Covid-19 schemes
Businesses that have taken out a CBILS, CLBILS or BBLS facility are able to access the new scheme although the amount they have borrowed under a previous scheme may in certain circumstances limit the amount they may borrow under RLS.

Personal Guarantees
Personal guarantees can be taken at the lender’s discretion, in line with their normal commercial lending practices. Principal Private Residences cannot be taken as security within the Scheme.

Guarantee to the Lender
The scheme provides the lender with a 70% government-backed guarantee against the outstanding balance of the facility after it has completed its normal recovery process. The borrower always remains 100% liable for the debt.

Subsidy
The assistance provided through RLS, like many Government-backed business support activities, is regarded as a subsidy and is deemed to benefit the borrower. There is a limit to the amount of subsidy that may be received by a borrower, and its wider group, over any rolling three-year period. Any previous subsidy may reduce the amount a business can borrow. All borrowers in receipt of a subsidy from a publicly-funded programme should be provided with a written statement, confirming the level and type of aid received. Borrowers will need to provide written confirmation that receipt of the RLS facility will not mean that the business exceeds the maximum amount of subsidy they are allowed to receive.

Northern Ireland Protocol
All borrowers will need to answer some questions to determine whether they are inside or outside the scope of the Northern Ireland Protocol, to determine the relevant subsidy limit and hence the potential maximum amount they can borrow under RLS.

Eligibility Criteria

Turnover limit*
The scheme is open to smaller businesses with a turnover of up to £45m (on a group basis, where part of a group).

UK-based
The borrower must be carrying out trading activity in the UK.

No Covid-19 impact test required
Unlike with the previous phases of the scheme, for most borrowers there is no requirement to confirm they have been affected by Covid-19. For charities and Further Education colleges, confirmation of Covid-19 impact will still be required in some instances.

Viability test
The lender will consider that the borrower has a viable business proposition but may disregard any concerns over its short-to-medium term business performance due to the uncertainty and impact of Covid-19.

Credit and fraud checks for all applicants
Lenders will be required to undertake credit and fraud checks for all applicants. The checks and approach may vary between lenders.

Priority
Existing Arbuthnot Latham clients have priority to facilities, however new applicants may be considered.

Business in difficulty
The borrower must not be a business in difficulty, including not being in relevant insolvency proceedings.

Purpose
The facility must be used to support trading in the UK and cannot be used to support certain export related activities. There are certain restrictions on the use of proceeds of facilities in the agriculture, fisheries and aquaculture, and road freight transport sectors for borrowers impacted by the Northern Ireland Protocol.

Please note – the following are not eligible under RLS:

• Banks, Building Societies, Insurers and Reinsurers (excluding Insurance Brokers)
• Public sector bodies
• State-funded primary and secondary schools

How to apply

If your business has been impacted and you meet the eligibility criteria, please email us at RLS@arbuthnot.co.uk to discuss how we can help you.

You will need to provide certain documents when you apply for an RLS-backed facility. These are likely to include:

• Management accounts
• A business plan
• Historic accounts
• Details of assets

Decision-making on whether a business is eligible for RLS is fully delegated to the British Business Bank’s accredited RLS lenders.

*Arbuthnot Commercial ABL typically support clients with a turnover equal to or greater than £1m and /or borrowing requirements equal or greater than £1m.

If you are a client of Arbuthnot Latham, please visit their page on RLS loans for more information.