Let’s start with the obvious. The Coronavirus Business Interruption Loan Scheme (CBILS) was a one off, really good, never to be repeated loan scheme so anything you compare to that is going to leave you disappointed.
What you need to do is compare what the Recovery Loan Scheme offers against a standard, run of the mill, business loan because come 1st January that will be the only option on the table.
I fear that because comparisons are drawn between the Recovery Loan Scheme and it’s predecessor, the Coronavirus Business Interruption Loan Scheme, many businesses fail to see the value and benefits that exist.
Nobody likes unnecessary risk. I ride a bike I wear a helmet, I cross the road I look both ways. Risk is something that we mitigate every day of our lives, when borrowing money it should be no different.
Providing a personal guarantee to a lender to support limited company borrowing is the standard. For most company directors a personal guarantee is necessary and something that they consent to because they have to.
The RLS offers a way out.
Imagine a standard business loan of £200,000. Typically there would be a personal guarantee from the directors and, maybe, a charge over the director’s home.
How about putting that borrowing onto an RLS, removing the personal guarantee and removing the charge over the home.
Would that make you sleep easier? The RLS is possibly the last chance to do this.
With CBILS repayments due to start there will be many businesses looking at how they mitigate those costs, there will also be a number who will be taken by surprise having not budgeted for the cost.
Either way, the RLS can be used to refinance CBILS borrowing. At first sight there may be little benefit in swapping one loan for another, but dig a little deeper and there can be a benefit. There are some RLS lenders who will offer a 6 year repayment term with interest only for the first year.
If we take a standard £200,000 CBILS loan:
- CBILS repayments of £5,080 per month
- RLS interest only £1,660 per month
Yes, the capital still has to be repaid, but it eases the repayments in. It allows more time for the business to recover and to rebuild cash reserves.
What many businesses will see is that as they file their 2020 financials a line in the sand is drawn. They will have a weaker set of accounts from which to support any future lending application.
RLS affordability is usually based on 2019 figures, meaning that the borrower has a choice as to whether to use their 2020 figures or 2019, whichever is the stronger.
The bottom line with RLS is that it will be missed when it is gone and too many businesses will have failed to see the opportunity. It isn’t right for everyone but for many it will be a good fit, and around for a short time only.
If you want any help with RLS, knowing what the best options are, or being successful in applying then get in touch.