While it ran, the Recovery Loan Scheme (RLS) was the biggest news in business funding. The scheme was designed to help businesses borrow by giving a government guarantee to banks that loaned money.
The RLS proved popular: certainly when Swoop ran a webinar or sent an email about it, we noticed an uptick in interest, such is the power of name recognition. But as shutdowns ended and things looked set to return to normal, the RLS was phased out.
Now it’s back.
A lacklustre recovery from the worst of Covid has seen businesses continue to struggle with the challenges of reopening shuttered premises, finding new staff, dealing with supply chain issues, complexities around Brexit and further uncertainty. There is talk of a global recession.
So the government, keen to show itself as a champion of SMEs, has re-introduced the scheme – with modifications. Under the new rules, the government underwrites 70 percent of what the lender could lose if a business defaults. And while the maximum loan size is still £2m, under the new scheme, lenders may require a personal guarantee from the borrower.
The question is, should business owners be getting excited about the new RLS?
I believe that RLS has become a bit of a brand that has crept out from its original meaning, much like a vacuum cleaner has become a Hoover, or ordering a Coke and getting a Pepsi. Businesses may go to the bank, broker or Swoop to enquire about a loan under the scheme, and come away with something else.
As the RLS was being phased out earlier this year, businesses were already finding that there were other products on the market that suited their needs better.
There is also the unanswered question about whether or not the change in lending criteria will make the banks more willing to lend than they are at present.
At Swoop, we have found that our customers often come to us after they have been turned down by their bank. In finding our customers a solution, we often find that a loan per se is not exactly the right answer to their problems.
Trying to take an objective, and I hope not cynical, view, re-introducing the RLS looks like a move that will generate some good news stories, but which may not deliver. It is not clear that banks will be more willing to lend in the first instance. If they are willing to lend, it might not be in the best interest of the businesses applying for the loans. There are also smarter ways of supporting and funding SMEs than a loan of this nature. The government cannot simply roll out another iteration of the same old scheme and think that it is job done.
Businesses should certainly think carefully about their funding needs. RLS itself is a replacement for the CBILS program, which was rushed out to help struggling businesses in the early days of the pandemic. Plenty of businesses needed this money, and when the RLS was introduced with better interest rates, we found a lot of our customers were refinancing their CBILS loans to RLS and saving money.
The lesson is: just because the new RLS is a government-backed scheme does not mean that it will be the best value for borrowers.
I have no doubt that there will be some who really benefit from the new system. It does concern me that the new RLS as it stands appears to be something that looks good on paper, but which may not deliver the support for small businesses that I for one would like to see prioritized.
The good news about the new RLS is that it shows the government is aware that business funding is an issue. If we can keep talking about funding and making it part of the everyday conversation around business, other funding solutions can be discussed as well.
Raising awareness of the needs of SMEs is always good in my book.
