Rishi Sunak

The new Business Recovery Loan Scheme (RLS) was launched on the 6th of April, and designed to help businesses’ recovery from the last year of lockdown.

Businesses can access loans ranging from £25,000 – £10,000,000

The scheme is in effect an amalgam of Business Bounce Back Loans and CBILS, with the Government providing an 80% guarantee to lenders for all loan repayments as opposed to the 100% it previously offered them on CBILS, and no 12 month repayment holiday for the borrower.

The general feeling amongst brokers at present is underwhelming with little obvious to recommend it to clients, as unlike the CBILS product there is no repayment holiday for the applicant, who now has to cover the cost of the loan from Day 1.

Loan costs seem to be the same as any other standard facility. Which could well lead many lenders to back away from the scheme in favour of sticking with their traditional lending products

From the lenders point of view, with the Government only guaranteeing them 80% of the loan repayments, and with those on the scheme unable to take Personal guarantees on loans below £250,000, these lenders will have 20% of the debt wholly unsecured, and the concern is they will remain cautious with their underwriting on affordability.

Lenders will look at serviceability as a key driver and if the client already has a CBILS or Bounce Back Loan, this could be an issue especially if the High Street banks and other Tier 1 lenders use their current levels of Debt Service Requirements such as 175% annual repayment cover.

It is hoped that lenders will enter the spirit of the scheme – Recovery – and underwrite based on a clients’ performance before the lockdown and use projections to show affordability for further borrowing but as few deals have been assessed to date this is yet to be seen.

Of course it’s still early days for the scheme, and hopefully it will evolve, but for now we would suggest that if you are looking for business finance soon ,then its definitely worth a call to your Finance broker or provider, and see what secured or unsecured business finance is already available to you

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