Over the course of the last 12 months the support measures to business have included the government backed loan schemes aimed at providing vital cash flow to businesses during the COVID crisis. The funding support has now changed and with effect from 6 April 2021 the CBILS/Bounce Back loan schemes have been replaced with the Recovery Loan Scheme.

What is the Recovery Loan Scheme?

The Recovery Loan Scheme provides financial support to businesses across the UK as they emerge from the crisis. There are similarities to the facilities previously provided under CBILS, namely:

• no personal guarantees will be taken on facilities up to £250,000 and no private residence will be taken as security
• the facilities are 80% backed by the government
• the borrower has to meet the same criteria in that they are UK based, not in collective insolvency proceedings and, would be viable were it not for the impact of COVID-19.

The points of difference are:

• unlike CBILS and Bounce Back loans, there is no support to cover the interest in the first 12 months
• the terms are a maximum of three years for overdrafts and invoice finance, and six years for term loans and asset finance (rather than up to 10 years).

How can you maximise your chances of success?

There are currently fewer lenders on the Recovery Loan Scheme, although this may change over time, so getting yours right first time is key to making the process as efficient as possible and maximising your chances of success. In applying for a loan under the scheme businesses should ensure that they submit a robust application pack with all the information required.  This will stand you in good stead when approaching and seeking support from existing and new lenders.

Your application should include the following information:

• identify early on in the process any potential barriers and the potential solution
• an assessment of your funding needs and the most appropriate borrowing proposal
• create a structured lending proposal demonstrating:
  • how the business performed financially prior to the crisis
  • an assessment of how much you need to borrow with an assumption on headroom required
  • an assumption of how trading will be impacted over the next three to six months
  • how the business is likely to perform in the next two to three years
  • three year forecasts to support your business case with upside and downside sensitivities.

If the Recovery Loan Scheme is not the solution on its own

You may have already had a conversation with your existing lender about applying for a loan/facilities under the scheme, including the possibility of rescheduling your existing facilities.

Irrespective of whether you qualify under the Recovery Loan Scheme, you should assess your current facilities and financial performance and consider:

• improvements in your working capital
• preparing a robust turnaround plan for the next three years
• consider hire purchase and finance lease capital repayment holidays, particularly if they are with the same provider
• agree an extension to your overdraft limit as long as there is a cashflow to support the correction of the facility
• relaxing financial covenants, for example around EBITDA levels and interest cover
• amending lending formula, for example extending invoice discounting advance rates, extending loan terms.