Autumn budget changes to the Recovery Loan Scheme

In the recent Autumn Budget 2021, the Chancellor announced that the RLS will be extended by six months from the original end date of 31 December 2021 to 30 June 2022, which some commentators have described as providing a vital lifeline for businesses. 

However, from 1 January 2022 the following changes will come into force: 

• the scheme will only open to small and medium sized enterprises;
• the maximum amount of finance available will be £2 million per business; and
• the guarantee coverage that the government will provide to lenders will be reduced from 80% to 70%. 

While the final point regarding the reduction in the government guarantee doesn’t directly impact businesses (the borrower is still 100% liable for the debt), it is uncertain what impact it will have on lenders with some speculation that it will ultimately increase lending rates (albeit the annual effective rate of interest, upfront fee and other fees cannot be more than 14.99% under the scheme) and potentially remove some lenders from the RLS market which could make it more difficult for businesses to obtain the funding they are looking for. The Autumn Budget describes this change as encouraging the lending market to move towards normality as the economy continues to recover. 

Businesses can apply to the scheme if the coronavirus pandemic has affected the business and the finance can be used for any legitimate business purpose – including managing cashflow, investment and growth. 

If a business has already borrowed from any of the other coronavirus loan schemes – namely the Bounce Back Loan Scheme or Coronavirus Business Interruption Loan Scheme (“CBILS”) – then the RLS is still available. 

Similarly to CBILS, personal guarantees are not permitted for facilities of £250k or less. Above £250k the lender has discretion on whether to take personal guarantees, but the maximum amount that can be covered under RLS is capped at a maximum of 20% of the outstanding balance of the RLS facility after the proceeds of business assets have been applied. No personal guarantees can be held over Principal Private Residences. 

When businesses apply for finance from the RLS, they will need to provide certain evidence to show that the RLS-backed facility is affordable. This is likely to include the following: 

• Management accounts
• Business plan
• Historic accounts
• Details of assets 

More information about the RLS can be found on the gov.uk and British Business Bank websites.