The Recovery Loan Scheme (RLS) will be relaunched at the beginning of August for a two year period, with a few minor changes.
There had been speculation that a follow-on scheme would be introduced to replace the RLS, but the British Business Bank (BBB) and the Department for Business, Energy & Industrial Strategy (BEIS) have confirmed that the RLS will be extended for another two years.
Full details of the new-look RLS will be revealed in early August, but lenders will be encouraged to request personal guarantees from business owners under the terms of the relaunched scheme.
Earlier today, the BBB revealed that more than £4.5bn had been offered to UK small businesses under the RLS.
The BEIS said that the principle behind the extended RLS will remain unchanged, with the government underwriting 70 per cent of lender liabilities in return for a lender fee.
Lenders must ensure that the benefits of the government guarantee are passed through to businesses.
The maximum loan size will continue to be £2m. However, lenders may now request a personal guarantee from the borrower, which the BEIS believes is “in line with standard commercial practice”.
“Small businesses are the lifeblood of the British economy, which is why we are determined to support our traders and entrepreneurs in dealing with worldwide inflationary pressures,” said business secretary Kwasi Kwarteng.
“The extension of the RLS will help ensure we continue to provide much-needed finance to thousands of small businesses across the country, while stimulating local communities, creating jobs and driving economic growth in the UK.”
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The scheme was initially scheduled to run from April 2021 until the end of December 2021, before being extended to 30 June 2022. It will be relaunched at the beginning of August 2022 under the administration of the BBB, and further details will be made available then.
Alternative lenders have largely welcomed news of the extension.
Ravi Anand, managing director of alternative lender ThinCats said that many mid-sized businesses are looking for funding as high street banks reduce their credit appetite.
“The question is whether the new scheme will be sufficient to convince banks to carry on lending and whether non-bank lenders can pick up the slack,” Anand added.
“An additional concern is that many companies, particularly small businesses, already have high levels of existing debt and lenders will need to be diligent to test business viability.
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“This new scheme may need to pivot, and be made more attractive to lenders, to ensure they can support the working capital requirements of businesses in those sectors hit hardest by the inevitable macro-economic headwinds.”
David Fleming, UK head of restructuring at Kroll (business advisory, restructuring and insolvency practitioner), said that “further support is certainly needed and is a welcome initiative.”
“However, there was a low take up of the previous RLS scheme due to the restrictive terms and the fact that many businesses had already accessed government support by way of the original CBILS and other schemes,” he added.
“Increasing leverage and repayments is a big decision to make for directors that are still struggling now we have returned to a level of normality, and the banks will still need to assess the credit risk despite the government guarantees that have been in place. Given the recent scrutiny over the rollout of the earlier loan schemes, it may be more challenging for the banks to extend further loans where the customers are outside of normal banking terms.
“There are a lot of companies who have taken on a lot of debt in recent years and are yet to return to the same profitability pre-Covid. The increased interest rates and need for personal guarantees may result in a lacklustre take up of the new RLS, but hopefully access to the new scheme will be attractive for businesses and ultimately the devil will be in the detail.”
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