At the Budget on 3 March 2021, the UK government announced a new government backed loan scheme, to be known as the Recovery Loan Scheme, which will replace the existing Bounce Back Loan Scheme, Coronavirus Business Interruption Loan Scheme and Coronavirus Large Business Interruption Loan Scheme, which have supported in excess of £73billion of lending to date and each of which will close to new applications on 31 March 2021.
The new Recovery Loan Scheme is intended to support ongoing access to finance for UK businesses as they recover from the economic impact of the COVID-19 pandemic.
The Recovery Loan Scheme will open for new applications from 6 April 2021 until 31 December 2021, albeit those dates are subject to review. Full details of the scheme have yet to be published but the initial information released by the UK government suggests that the Recovery Loan Scheme will have a same look and feel as the Coronavirus Business Interruption Loan Scheme and, barring a very small number of features, will operate in a similar way.
The information published this week indicates that the key features of the new scheme are as follows:
- subject to viability and solvency criteria, all UK businesses affected by the pandemic (regardless of their turnover) can apply for loans or other types of finance of up to £10 million per business. The only excluded businesses unable to partake in the scheme are banks, building societies, insurers, public-sector bodies and state-funded primary and secondary schools;
- businesses can apply funds obtained under the scheme for any legitimate business purpose (including cash flow management, growth and investment);
- as was the case with the CBIL and CLBIL schemes:
- the government will guarantee 80% of the finance to the lender to encourage lenders to make loans available;
- a variety of facilities will be available with term loan facilities, overdraft facilities and asset and invoice finance products being made available under the new scheme. The range of facility limits is different, however with term and overdraft facilities ranging between £25,001 and £10,000,000 and invoice and asset finance product limits ranging from £1,000 to £10,000,000;
- the scheme will operate through a panel of accredited lenders. Details of the accredited lenders will be published in due course;
- like the CBIL scheme, term loan and asset finance facilities will be available on six year terms whilst overdrafts and invoice finance lines will be available for up to three years;
- no personal guarantees will be taken on facilities up to £250,000, and a borrower’s principal private residence cannot be taken as security; and
- businesses which have previously received support under the existing schemes will still be eligible to access facilities under this new scheme. It appears to be the case that this applies regardless of which of the existing scheme has already been used. The borrowing of a Bounce Back Loan previously prohibited borrowing under the CBIL scheme which led many borrowers to refinance their Bounce Back Loans by way of a CBILS loan. Similar prohibitions do not appear to be proposed for the Recovery Loan Scheme.
Unlike under the existing schemes, borrowers will not benefit from any arrangements similar to the "business interruption payment" offers, which currently see the UK government paying interest and any applicable fees during the first 12 months of any government backed facility made available under the existing schemes. Instead, borrowers will be directly liable for all such interest payments and costs from the outset. At this stage it is not yet clear whether lenders accredited under the Recovery Loan Scheme will be expected to offer finance subject to specified, government approved pricing levels in respect of their margins and/or fees in order to be eligible to benefit from a UK government guarantee. That might well be determined as further details are published but it may be a reasonable assumption at this stage that pricing will have to be commercially sensible if the Recovery Loan Scheme is to be fit for purpose and is to properly aid businesses through their recoveries.
As the Recovery Loan Scheme is intended to aid the recovery of UK businesses out of the COVID pandemic it must be anticipated that lenders accredited under the new scheme will have to overlook what might otherwise be normal concerns about short to medium term performance of many applicants where that poorer performance is directly attributable to the pandemic. Inevitably, the approach taken by accredited lenders will vary subject to their respective credit policies and criteria to the extent the new scheme provides enough flexibility to impose their own requirements, particularly as they aim to mitigate and balance risk across their portfolios.