What next for businesses as government support schemes come to a close?

fundingThis article is from the team at Swoop Funding and looks at what is next following the conclusion of some of the government support for businesses impacted by the pandemic. 

All good things must come to an end, and so we bid farewell to the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS), two of the most generous support measures ever launched by a UK government. After issuing loans worth £75 billion, both schemes closed to new applications on 31st March.

While the worst effects of lockdown are hopefully over, as part of the 2021 Budget the Chancellor recognised that businesses need continued support as the UK economy gradually reopens. One of the policies he announced was a replacement for CBILS and BBLS, called the Recovery Loan Scheme (RLS).

RLS launched on 6th April and runs until the end of the year, although the deadline is subject to review. It offers a variety of products, including term loans, overdrafts, asset finance and invoice finance, which companies of all sizes can access, regardless of their turnover. Similar to CBILS, 80% of the loan is guaranteed by the government.

The minimum loan size depends on the type of funding. You can apply for as little as £1,000 through asset finance, to subsidise investment in equipment, machinery or vehicles, or invoice finance, where firms borrow against outstanding invoices.

The minimum rises to £25,000 for term loans and overdrafts. The maximum loan across all products is £10 million per business. Overdrafts and invoice finance have a term length of up to three years, while term loans and asset finance are available over six years.

Personal guarantees aren’t required for loans less than £250,000. It’s up to the lenders to decide whether to take guarantees on any higher amount, but they can’t use your home as security.

RLS differs in two key ways to the schemes which just came to an end. While CBILS and BBLS offered interest payment holidays for a year, borrowers from the new scheme must start paying interest (and any other associated fees) immediately. Rates are capped at 14.99%.

Borrowers also need to go through credit and fraud checks to access RLS. This shouldn’t come as a surprise, considering a report published by a House of Commons working group warned that BBLS defaults alone could cost £26 billion. However, lenders have the flexibility to look past recent performance, which may have suffered due to lockdown, when assessing an application. Each lender sets its own criteria.

The good news is that even if your SME received funding through CBILS or BBLS or both, you can top it up with RLS. How much you can borrow depends on which lender you approach, and some may also take into account any existing loans secured through the previous schemes.

The terms of RLS aren’t as generous as CBILS or BBLS, but those schemes weren’t sustainable over the long term. They were designed to help businesses survive the uncertainty of the pandemic, whereas the current situation, as the UK follows the government’s roadmap out of lockdown, is more optimistic.

That said, RLS may be worth considering if your business still needs support to take full advantage of the economic rebound which is hopefully just around the corner.

To keep up to date on the opportunities available through RLS, or to explore alternative funding and savings solutions, simply create your free account with Swoop today.