The Recovery Loan Scheme has been a huge success but with changes planned for the new year, businesses should move to get deals agreed sooner rather than later
The Recovery Loan Scheme has proven to be popular with businesses: a government-backed exercise in making money more easily available to businesses struggling to return to the marketplace after a difficult time, the RLS has put wages in workers’ pockets, unshuttered shops and filled shelves.
The scheme was due to end on 31 December 2021, but rumours that it would be extended were swirling long before Chancellor Rishi Sunak announced that it would indeed continue until June 2022, albeit with a few changes. From 1 January, RLS will:
- Limit businesses eligible to SMEs only
- Finance will be capped at £2m per business
- The government guarantee to lenders will reduce from 80 percent to 70 percent
What does this mean for you as a business owner?
Taken individually, these changes may make marginal differences to how attractive a prospective borrower is to a lender. Collectively, they may make getting a loan under the scheme more difficult in the New Year. In particular, with the government guarantee dropping, lenders will strengthen their loan criteria and interest rates will be higher.
If you think your business will need to access finance in the next six months, it will be better to apply now. The same is true if you have already taken out a CBILS product, for the simple reason that the interest-free period and capital repayment holiday will have come to an end. This new model outgoing at a time when furlough has ended, deferred tax needs to be paid and in the run up to Christmas is likely to cause additional cash flow burdens. A standard £200k CBILS loan will now cost £5,080 per month. Refinancing to a lender offering a year of interest-only payments and a six year term could drop that monthly repayment to £1,660. That’s the kind of difference that could be significant for many businesses right now.
Act now
The timing of the change has come at a less-than-ideal moment: with Christmas just weeks away, opportunities to review your finance needs may be limited. It may, however, be a review that takes less time than you think with Swoop, enabling you to get the New Year off to a good start rather than shoring up problems to deal with later.
Aside from the shrinking RLS opportunity, you may also be able to head off the issue of January’s VAT bill: seasonal cashflow pressures and late payments from customers can make the January bill especially tough and you might benefit from VAT loans which help spread the cost of the bill over three months, avoiding penalties and interest from HMRC.
A decision needs to be made – quickly. At Swoop, we don’t tell business owners what to do but we do show you what your options are: signing up to Swoop will give you visibility over deals from hundreds of lenders across the market in one place and indicates which applications are more likely to be successful. This side-by-side comparison saves time and hassle; Swoop integrates with banking and accounting software so that applications take a few clicks rather than a few hours. Open banking and automation software fills out the forms with the correct information, helping you move quickly when you need to do so.
Looking ahead
The latest rumours are that the next budget may see the Chancellor begin to claw back some of the spending of the last two years. It is likely that there will be further price rises across commodities and further disruption from Brexit. Sudden spikes in costs may see businesses rushing to lenders for finance, and competition for borrowing may become fierce. Would you rather be on the front foot and prepared, or fighting for your place in the middle of the crowd?
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