Last week saw the launch of the Recovery Loan Scheme (RLS), the latest government programme for firms hurt by Covid-19. It replaces all the plans unveiled a year ago. Ministers say the RLS will be available until at least the end of 2021, though it is less generous than its predecessors.
Businesses can borrow up to £10m through the RLS, with the loan repayable over a term of up to six years. The state guarantees up to 80% of the loan, enabling banks and other providers to lend more widely and generously. Firms can set the borrowing up as a conventional bank loan or overdraft, or opt for an asset-finance or invoice-finance arrangement.
The scheme is open to all businesses irrespective of turnover, and companies that borrowed through the previous schemes can apply for further finance from the RLS. To be eligible, businesses must certify that they have been negatively affected by Covid-19: that they have been unable to trade, for example, or that sales have fallen. But they can use RLS finance however they see fit, from managing cashflow to funding new investments.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Unlike with the previous schemes, the government is not picking up the cost of the first year of interest charges or any fees that may be payable to set up the finance. The loans come from banks accredited by the British Business Bank to take part in the scheme, including the main high street banks, with the state leaving providers to set their own terms. But it has warned lenders it expects costs to reflect the economic benefit of the guarantee it is providing – and lenders will not be allowed to ask for personal guarantees from company directors on loans of less than £250,000.
The upshot is that the RLS is likely to be more expensive for many businesses than the schemes it replaces; the six-year term of loans, compared with ten years for previous programmes, also means repayments will be higher. Some businesses may even be able to secure a better deal through more conventional arrangements not backed by the government, so it is worth discussing these with lenders.
Consider other options
This scheme is drawn with wider terms than the three separate ones it replaces, seeking to meet the needs of businesses of different sizes, including both sole traders and limited companies. For the smallest firms in particular, other options may be better. The British Business Bank’s Start Up Loans scheme offers advances of up to £25,000 for firms in their first two years of trading at a fixed rate of 6% a year.
Still, the fact that RLS money can be used for any legitimate business purpose is particularly valuable. For some, it may make sense to use the finance to repay previous borrowing taken out on more expensive terms.The British Business Bank has full details of the scheme, and participating lenders, onbritish-business-bank.co.uk. You needn’t be an existing customer of a lender to apply to it for an RLS loan.
-
MoneyWeek news quiz: How much will a 2026 FIFA World Cup final ticket cost?Quiz The 2026 World Cup, Netflix, and the cost of care all made headlines this week. How closely were you following this week’s top stories?
-
Christopher Harborne: Reform UK donor and crypto billionaireChristopher Harborne came into the spotlight when it emerged he had given £9 million to Nigel Farage's Reform UK. How did he make his millions?
-
Rachel Reeves's punishing rise in business rates will crush the British economyOpinion By piling more and more stealth taxes onto businesses, the government is repeating exactly the same mistake of its first Budget, says Matthew Lynn
-
Leading European companies offer long-term growth prospectsOpinion Alexander Darwall, lead portfolio manager, European Opportunities Trust, picks three European companies where he'd put his money
-
How to capitalise on the pessimism around Britain's stock marketOpinion There was little in the Budget to prop up Britain's stock market, but opportunities are hiding in plain sight. Investors should take advantage while they can
-
London claims victory in the Brexit warsOpinion JPMorgan Chase's decision to build a new headquarters in London is a huge vote of confidence and a sign that the City will remain Europe's key financial hub
-
The consequences of the Autumn Budget – and what it means for the UK economyOpinion A directionless and floundering government has ducked the hard choices at the Autumn Budget, says Simon Wilson
-
Reinventing the high street – how to invest in the retailers driving the changeThe high street brands that can make shopping and leisure an enjoyable experience will thrive, says Maryam Cockar
-
The global defence boom has moved beyond Europe – here’s how to profitOpinion Tom Bailey, head of research for the Future of Defence Indo-Pac ex-China UCITS ETF, picks three defence stocks where he'd put his money
-
Profit from a return to the office with WorkspaceWorkspace is an unloved play on the real estate investment trust sector as demand for flexible office space rises
