Extension of the Recovery Loan Scheme – a welcome act of largesse by the Government?

On 27 October 2021, Rishi Sunak, Chancellor of the Exchequer, as part of his Autumn Budget, announced an extension of the Recovery Loan Scheme (RLS). The RLS, originally due to end on 31 December 2021, has now been extended for a further six months until 30 June 2022.

What is the RLS?

As a brief reminder, the RLS launched on 6 April 2021 as part of the Government’s support of UK businesses adversely affected by the pandemic. The RLS replaced previous Government-backed loan schemes (the Coronavirus Business Interruption Loan Scheme, the Coronavirus Large Business Interruption Loan Scheme and the Bounce Back Loan Scheme, together, the Previous Schemes) which closed to new applications on 31 March 2021.  Administered by the British Business Bank (BBB), the RLS currently includes a Government-backed guarantee for lenders of 80 per cent on business loans from £25,000 up to a maximum of £10 million, with interest rates capped at 14.99 per cent. Under the RLS, funds are available for any legitimate business purpose – it was designed to appeal to businesses that can afford to take out additional finance for those purposes. For further details of the RLS, please see our previous article here.

Changes to the RLS

Along with the extension, the Chancellor also announced changes to the RLS. From 1 January 2022, the following new conditions will come into force:

• The RLS will be open only to small and medium sized enterprises (SMEs) (there were no previous restrictions on business size).
  
  
• The maximum amount of finance available will be £2 million per businesses.
  
  
• The Government-backed guarantee to lenders will be reduced to 70 per cent.

Further details can be found on the Government’s website here.

To qualify under existing terms of the RLS, businesses must apply and receive a formal signed loan offer by an accredited lender by 31 December 2021. Please note that this process can take time, so businesses are encouraged to act quickly if they wish to receive funding via the RLS on its existing terms.

A success story?

We mentioned in our previous article (referenced above) that initial take-up of the RLS had been slow mainly due to the more stringent eligibility criteria and higher interest rate charges than the Previous Schemes. However, that said, the BBB announced on 25 October 2021 that the RLS passed a significant milestone since its launch in April 2021. A total of £1.06 billion has been offered by 76 accredited lenders to businesses across the UK to help them move towards a sustainable recovery. Of that £1.06 billion of funding, £822.8 million has been drawn down through 5,137 facilities. A link to the BBB’s press release can be found here.

Commentary

There is no doubt that the RLS has helped businesses obtain much needed finance during the pandemic, and the Government has been praised for its continued delivery of support to UK businesses during very difficult times. However, many businesses are still facing financial (and other) pressures especially as we head towards winter. Some feedback on the extension of the RLS has been positive as SMEs can continue to access to the vital finance that they need to recover from the pandemic, rebuild and invest in the future (at least until 30 June 2022).

However, are SMEs really likely to access the RLS now that the terms have been watered down? Does the RLS have a future? At the time of writing, the RLS is still the only Government-backed lending scheme around, but it will not be around forever. Either a permanent replacement for the RLS needs to be put in place (keeping the best aspects of the RLS like the Government guarantee) or alternative funding methods which can be more effective and conducive for growth need to be considered and/or used (eg: traditional loans). Businesses may also be reluctant to borrow further under the RLS (especially if they have already borrowed under the Previous Schemes which were not made available under a fixed rate) due to concerns about a potential interest rate rise by the Bank of England. One to watch for the future.

If you require further information about anything covered in this briefing, please contact Suzanne Conticelli, or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, November 2021