The Recovery Loan Scheme – final bridge to the 'New Normal'?
Background
The Recovery Loan Scheme (RLS), announced in the recent budget, was launched today (6th April 2021) as the UK Government continues to underpin support for those business most affected by the COVID-19 pandemic. The RLS replaces a number of emergency loan schemes (Schemes) established in the Spring of last year which have helped the banking community provide much needed liquidity to start-up companies, SMEs and mid & large corporates. Much has been said about the possibility of some of the borrowers under these Schemes struggling to repay the debt incurred and no doubt this will be debated in the months and years to come, but what is undoubted is the various Schemes have seen government, advisors and banks pull together to help provide unprecedented support to well over 1.6m companies many of whom will be the lifeblood of the economic recovery as the country emerges from the pandemic.
The Schemes
The Bounceback Loan Scheme (BBLS) available to all borrowers with a loan limit of £50,000 carried a 100% government guarantee and has seen 1,531,095 successful applications as at 21st March with over £46.5bn advanced by accredited banks.
The Coronavirus Business Interruption Loan Scheme (CBILS) designed for smaller corporate borrowers looking for a maximum of £5m in loans featured an 80% government guarantee and has seen close on 100,000 loans completed for a total of £23.28bn in loans advanced.
The Coronavirus Large Business Interruption Loan Scheme (CLBILS) also carried an 80% guarantee and was launched with an upper loan limit of £200m to help larger corporates. As at 21st March, £5.3bn had been extended to 716 borrowers.
All three of the above schemes closed to new applications on 31st March 2021.
In addition to the loan schemes described above, the Future Fund which closed on 31st January 2021 extended over £1.1bn in convertible loans aimed at start-up / fast growth companies. The Future Fund will effectively be replaced by a £375m equity start up fund also announced in the budget.
A summary of amounts advanced and number of successful applications is seen below.
| Amount (£bn) | Number of Loans |
|
| BBLS | 46.53 |
1,531,095 |
| CBILS |
23.28 |
98,344 |
| CLBILS |
5.3 |
716 |
| Future Fund |
1.12 |
1,140 |
| Total | 76.23 |
1,631,295 |
The Recovery Loan Scheme
The RLS which will initially run until 31st December 2021 is available to any borrower, regardless of size, but carries an upper limit of £10m per borrower and £30m per Group (reduced further by other liquidity facilities that a borrower has taken, noting that the borrower may have other facilities supported by BBLS/CBILS/CLBILS, and is not required to refinance them with the RLS facility).
Many of its features are similar to the schemes outlined above, subject to a few key differences. Borrowers will pay fees and interest from the outset and whilst there is a necessity that the interest rates charged will reflect the benefit of the government guarantee, the maximum that may be charged is 14.99% per annum.
It should also be noted that the RLS has greater in-built flexibility, signposting the potential long term nature of the scheme with the ability for the government to reduce its degree of support over time as it weans UK Corporate off government support and on to the 'new normal', whatever that may be.
A bridge to the 'New Normal'?
There are differing views as to how strong the uptake of these facilities will be, given the likely higher rates and necessity to pay interest 'immediately'. But the RLS facility must be additional finance, offered either where a commercial facility would not have been, or would have been offered at a higher price. The general feeling is that most borrowers will have tried to access the more beneficial prior schemes in most instances making this scheme a less palatable fall back option – but it is still likely to be essential to many borrowers and may provide an important lifeline in that bridge back to the 'new normal'.
Recap
Please see below a comparison between the Schemes launched last year and the new RLS. We have also included a pdf version of the table at the end of this article.
This table sets out a high level summary of the key similarities and differences between the UK's emergency loan schemes. At Ashurst, we are experienced in advising clients on all of these schemes. If you would like to know more, please reach out to Lee.Doyle@ashurst.com or your usual Ashurst contacts.
|
|
Bounce Back Loan Scheme |
Coronavirus Business Interruption Loan Scheme |
Coronavirus Large Business Interruption Loan Scheme |
Recovery Loan Scheme |
|
Borrower turnover |
'All' borrower sizes applicable. |
Turnover up to £45m. |
Turnover above £45m. |
No turnover restriction. |
|
Borrowing limits |
Loans: £2,000 to £50,000. |
Loans: £50,001 (RCF/Term) or £1,000 (asset finance/invoice financing) to £5m. |
Loans: provided that the loan may not exceed the higher of |
Loans: (a) £25,001 - £10,000,000 (for loans and overdrafts); or (b) £1,000 - £10,000,000 (for asset and invoice finance), provided that the loan may not exceed the higher of in each case minus the CBILS / CLBILS Outstanding Amount, and subject to a maximum amount per Group of £30m. |
|
Number of Scheme applications |
One application only. |
Multiple applications available subject to overall CBILS borrowing limits. |
Multiple applications available subject to overall CLBILS borrowing limits. |
Multiple applications available subject to overall RLS borrowing limits. |
|
Interaction with other Schemes |
Not available if borrower or any member of the borrower group has accessed the CCFF or any other liquidity scheme set out in this summary, except to refinance the existing scheme debt in full. |
As per BBLS |
As per BBLS |
Borrowers can have existing BBLS/CBILS/CLBILS facilities. The RLS can be used to refinance the existing scheme debt in full. |
|
Facility types |
Term Loan. |
Term Loans, RCFs, Invoice Finance and Asset Finance. |
Smaller Facilities: Term Loans, RCFs, Invoice Finance and Asset Finance. Larger Facilities: Term Loans and RCFs. |
Term Loans, RCFs, Invoice Finance and Asset Finance. |
|
Term |
Fixed term of 6 years. |
Term Loans/Asset Finance: 3 months to 6 years. RCFs /Invoice Financing: 3 months to 3 years. |
3 months to 3 years. Term can be extended to 6 years after initial drawdown as part of certain permitted restructuring measures. |
Term Loans/Asset Finance: 3 months to 6 years. RCFs /Invoice Financing: 3 months to 3 years. |
|
Borrower benefits |
Interest free, fee free and capital holiday for first 12 months. Margin fixed at 2.5%. |
Interest free and fee free for first 12 months. Margin reduced due to Government guarantee. |
Fees vary between accredited lenders. Margin reduced due to Government guarantee. |
Interest and fees to be paid by the borrower from the outset. Margin reduced due to Government guarantee. |
|
Lender Benefits |
No Scheme Fee payable by Lender. Government will guarantee 100% of principal and outstanding interest. |
Scheme Fee payable by Lender based on quantum of scheme facilities advanced. Government will guarantee 80% of principal. |
Scheme Fee payable by Lender based on quantum and tenor of scheme facilities advanced. Government will guarantee 80% of principal and interest. |
Scheme Fee payable by Lender of 150bps per annum subject to (a) 50bps reduction for Invoice Finance and CDFI lenders and (b) 200bps per annum fee for lending to non-SMEs with terms longer than 3 years Government will guarantee 80% of principal. For RCFs, Government will guarantee 80% guarantee of principal and interest. |
|
Viability of the borrower |
Lender not required to verify. |
Reference to pre-COVID underwriting policies. |
Reference to normal lending policies (flexibility for COVID concerns), must believe borrower can trade out of those difficulties. |
Reference to normal lending policies (flexibility for COVID concerns), must believe borrower can trade out of those difficulties. |
|
Undertaking in difficulty test |
Borrower must self-certify. |
Applies to facilities >£30k Borrower must self-certify. |
Lender must determine that borrower is able to satisfy this test. |
Applies to facilities >£30k Lender must determine that NI borrowers are able to satisfy this test. Lender must determine that GB borrowers are not subject to relevant insolvency proceedings under national law. |
|
Security/guarantee and ranking |
No requirements. |
No requirements. |
Must be pari with most senior debt obligation and benefit from at least 90% of existing collateral package. Specific seniority and collateral requirements apply in respect of real estate finance transactions. Certain carve-outs for assets subject to asset finance or invoice discounting security. |
No requirements. |
|
Other aspects |
N/A |
N/A |
Dividend restriction applicable at borrower level and to any partner enterprise and linked enterprise of the borrower subject to certain limited carve-outs. In addition, for Larger Facilities: Cash bonus and pay rise restriction on senior management of the borrower and linked enterprise of the borrower subject to certain limited carve-outs. |
RLS facility must be additional: offered either where a commercial facility would not have been, or a commercial facility would have been a higher price. |
Authors: Lee Doyle (Partner), Dave Rome (Consultant), Sarah Curry (Associate)
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