The new scheme will launch on 6 April and remain open until 31 December 2021, and its introduction is timed to replace the existing Covid-19 loan schemes which have been in place since between March and May of last year (the Bounce Back Loan Scheme, the Coronavirus Business Interruption Loan Scheme, or ‘CBILS’, and the Coronavirus Large Business Interruption Loan Scheme, or ‘CLBILS’), which will themselves be closed to new applications after 31 March. Such schemes have been extremely popular, having provided almost £74 billion of financing (under almost 1.6 million approved facilities) to UK business since their introduction.
Whilst full details of the new scheme have not yet been published, the initial details released indicate that it will share many of the features of the existing schemes it is replacing. In particular, as with the CBIL and CLBIL schemes, the Government will be guaranteeing 80% of the relevant financing to the lender, with the aim of encouraging lenders to carry on lending in the current uncertain climate.
What type of lending will be available under the new scheme?
The scheme will allow eligible businesses to apply for up to £10m of facilities per business, with facilities available consisting of term loans, overdrafts, invoice finance and asset finance. These will be subject to a minimum facility size of £25,001 for term loans and overdrafts, and £1,000 for invoice finance and asset finance.
Term loans and asset finance facilities will be available for up to six years, whereas overdraft, invoice finance and asset finance facilities will be available for up to three years.
No personal guarantees will be taken for facilities below £250,000, and security cannot be taken over a borrower’s principal private residence.
There is no stipulation as to what the loans are to be used for, provided they are used for a ‘legitimate business purpose’ (including managing cashflow, investment and growth).
How will it differ from the existing Covid-19 loan schemes?
Whilst these terms share many of the same features of the existing Covid-19 loan schemes, there are some key differences.
Firstly, the ‘one-size-fits-all’ nature of the facility limits means that SMEs (with a group turnover of up to £45m) will be able to apply for up to twice as much as the £5m limit of facilities available under the CBIL scheme, whereas mid-sized and larger businesses (with a group turnover above £45m) will be able to apply for significantly less than the £200m that has been available to a borrower and its group since 26 May last year.
Also, whilst the government-backed guarantee of 80% of loans is the same as for the CBIL and CLBIL schemes, it is less than the 100% guarantee offered under bounce back loans.
In another key departure from the existing schemes, borrowers will be liable for all interest payments and costs from the start of the facilities (and will not, for example, benefit from the current “business interruption payment” arrangements whereby the government pays interest and any fees during the first 12 months of facilities under the existing schemes).
Who will the lenders under the scheme actually be?
So far, the announcement from the Government just states that the scheme will be available through ‘accredited lenders’, but the names of those lenders have not yet been made public.
Who will be able to apply for it?
The new scheme will be available to all solvent businesses trading in the UK that can demonstrate their business has been impacted by the pandemic (and is or would be viable if it were not for the pandemic). The only exceptions are banks, building societies, insurers, state-funded primary and secondary schools and public-sector bodies, which will not be eligible to apply.
Unlike previous schemes, it will not be subject to a turnover limit.
Also, businesses which have taken out financing under any of the existing Covid-19 loan schemes will still be able to apply for borrowing under the new scheme.
What are the next steps?
The scheme will be open from 6 April 2021, which is when eligible business will be able to start making applications for facilities under it.
Further details of the scheme are expected to be announced soon in anticipation of the launch date.
Please do get in touch with us if you would like more information or support to apply for the new Recovery Loan scheme.