Extension of Recovery Loan Scheme to June 2022- A welcome announcement for Business owners in Northern Ireland

Update May 2022

The Recovery Loan Scheme (RLS) will end on 30th June 2022. You can make applications for the scheme up until the end of the day on that date. However, in the past week, we have heard from some lenders that they are reaching capacity in certain business areas. If you are considering availing of the scheme, please speak to us now so we can help you get the best deal with the right lender

Changes to the Recovery Loan Scheme

For the Autumn Budget 2021, the Chancellor announced that the Recovery Loan Scheme will be extended until 30 June 2022, having already seen total funding of over £1bn offered to businesses by the scheme’s diverse range of accredited partners.

The government has extended the UK-wide Recovery Loan Scheme by six months. The RLS scheme was originally due to end on 31 December 2021 and will continue to support business recovery through the first quarter of the next financial year. Businesses can access this support until 30 June 2022. The Recovery Loan Scheme will allow eligible enterprises to apply for up to £10 million until December 31st reducing to £2 million during the extension period to June. The RLS facility is available for a range of funding needs.

There are some changes to the original scheme, most significantly the difference in the guarantees to banks. The government initially guaranteed 80 percent of the finance, but this will be reduced to 70 percent. The guarantee is to the lender and not to the business. The borrower is always liable for 100 percent of the repayments. It is important to note that terms for a Recovery loan include that companies will be responsible for paying the RLS interest payments and fees from the outset.

Johnston Financial Solutions welcome the Chancellor’s announcements, including several measures to support smaller businesses in Northern Ireland to be delivered via a range of programmes, enabling us to continue to help our clients make pivotal financial commitments supported by the Recovery Loan Scheme.

However, it would appear that despite the large sums delivered under the scheme of over £1bn offered to businesses, there is still hesitancy in accessing this funding. According to the British Business Bank, only 5,137 UK businesses have made use of the scheme so far. Therefore more work needs to be done to help Northern Ireland businesses access this funding, which is designed to encourage strategic recovery and growth in the economy.

The Recovery Loan scheme aims to help any business based in the UK affected by coronavirus and can be used for many business purposes. The funding may allow companies to restructure their finances or support businesses in managing cash flow through the start of the new financial year. Most importantly, the scheme is also available to help economic recovery, funding business investment and growth plans.

What can the Recovery Loan Scheme fund?

Investment in Advancing Industry 4.0 Technology

Businesses can use the Recovery Loan scheme funding available to capitalise on the opportunities presented by advanced technology. Industry 4.0 refers to the fourth industrial revolution and describes the growing trend towards automation and data exchange in technology and processes within the manufacturing industry, across supply chains and customer experience. Large-scale machine to machine communication (M2M) and the internet of things (IoT) are integrated for increased automation, improved communication and self-monitoring, and production of smart machines that can analyse and diagnose issues without the need for human intervention. Examples include:

» The internet of things (IoT)

» The industrial internet of things (IIoT)

» Cyber-physical systems (CPS)

» Smart manufacture

» Smart factories

» Cloud computing

» Cognitive computing

» Augmented reality

» Virtual Reality VR, Mixed Reality MR

» Blockchain

» Artificial intelligence

Advanced digital technologies facilitate an expanding customer experience with more critical data and access to real-time customer communications. The Recovery Loan scheme will help forward-thinking companies to position themselves well in the new economy. By enabling companies to utilise such technological advancement to deepen digital relationships and placing their increasingly autonomous consumers at the centre of the changes to value chains, products and services. Johnston Financial Solutions welcomes discussions with Northern Ireland Business owners considering investing in new technology to support their business growth. Click to Book a Free Consultation with Mark Johnston.

Research & Development supported by the Recovery Loan Scheme

The Recovery loan scheme can help small and medium-sized businesses in Northern Ireland with research and development costs to support the digital transformation of the UK economy. Research and development (R&D) is an essential driver of economic growth as it spurs innovation, invention, and progress. R&D spending can be capital-intensive; financial support such as the RL scheme can help overcome this challenge. Your business may have uncovered a roadblock in your process or identified an opportunity to develop new product lines.

Could your company achieve breakthroughs that can drive growth and resilience?

Further support is also available from the government through the Research and Development (R&D) tax reliefs, which have also been reformed. Measures include a provision for R&D relief on modern research methods by expanding qualifying expenditure to include data and cloud costs. Research and Development (R&D) reliefs support companies that work on innovative projects in science and technology. It can be claimed by a range of companies that seek to research or develop an advance in their field. Even unsuccessful projects can claim tax relief. To qualify, the project must relate to your company’s trade, either an existing one or one that you intend to start based on the results of the R&D. To get R&D relief, the business will need to explain how a project looked for an advance in science and technology. Your project may research or develop a new process, product or service or improve an existing one.

Supply Chain Management

The crisis in global supply chains will continue for months, well into 2022, and for some businesses, the Recovery Loan Scheme may present an opportunity to mitigate the risks. Accessing additional commercial finance will enable companies across Northern Ireland to manage the impact of these pressures on everyday trading conditions.

Strategic options for mitigating supply chain issues and avoiding inventory shortages include diverse sourcing, alternative transport routes, improved forecasting, and partnering with a freight forwarder. For smaller businesses improving inventory management will require investing, perhaps for the first time, in technology to maintain stock management systems. SMEs may decide to hold more stock than in previous years to protect revenue streams. Our clients have already accessed funding to extend their manufacturing capabilities and reduce the need to source components outside of Northern Ireland and increase their competitiveness in the export markets across Europe. Others may choose to employ advanced data and technology to make efficiencies across their value chain. These strategic options require finance to invest in new skills, recruitment and training of staff, upgrading systems and procedures and new relationship building.

Access to Recovery Loan Scheme Funding

Access to Recovery Loan Scheme funding will help Northern Ireland businesses improve supply chain resilience and build a robust economy. A successful loan application could support salary costs for a new, dedicated supply chain role within your company. This finance will enable businesses to recruit and develop the necessary supply chain resources and implement new procedures. Johnston Financial Solutions can help clients prepare a robust strategic development plan and navigate the application process by clearly demonstrating the business case. The application will include details of the benefits the funding will bring to the business and the tangible outcomes it will deliver, ensuring our clients are in the best position to proceed with a Recovery Loan Scheme funding application.

Recovery Loan Scheme for Stability and Resilience

Crises such as the COVID-19 pandemic in 2020 demonstrate what can happen when risks become a reality and resilience is put to the test in our globalised economies and societies. The recent announcement by the Chancellor of the UK government policies for 2022/2023, including the extension of the Recovery Loan Scheme, are designed to lower the risk of these economic shocks and prepare businesses to recover from them. Some measures are intended to speed up the recovery. However, many companies will not yet be able to invest in comprehensive strategic plans, new technology or research and development.

Northern Ireland Recovery

For many in Northern Ireland, the recovery program will be to stabilise their business with a laser-sharp focus on cash flow management and maintaining existing revenue streams. For those businesses, the extension of the scheme presents a solid opportunity to copper fasten those plans with access to funding if required. It provides another option to address any potential vulnerability that may present itself in the last quarter of the financial year.

Our message to those business owners is not to wait until your cash flow situation becomes strained. Plan and assess all the options and government support available to your business, alongside an assessment of this scheme. Reach out and have a discussion with us about the structure and terms of the Recovery Loan Scheme. Get in touch and prepare your business plan and application to ensure you are ready should funding be required in 2022.

Building Economic Resilience

There are many challenges facing the Northern Ireland Economy; these include strengthening the resilience of global supply chains, addressing imbalances across the region which present sources of vulnerability, and addressing the challenges stemming from the digital transformation of our economies. Addressing these challenges, alongside heightened ambitious efforts to tackle climate change and social inequalities, is essential to improve economic resilience but also to rebuild trust in governance structures, institutions and the economy itself.

Additional Measures to Support Economic Recovery

The Recovery Loan Scheme extension news alongside the announcement that the Super-deduction extension, the Annual investment allowance limit extension and the expansion of R & D Tax Relief show clear government support for investment and innovation. These incentives aim to boost economic recovery through sustainable growth and development and encourage businesses to take the necessary steps to remain competitive in the global economy.

The Super Deduction on Capital Expenditure

For expenditure incurred from 1 April 2021 until the end of March 2023, companies can claim a Super Deduction 130% capital allowances on qualifying plant and machinery investments. Under the super-deduction, for every pound a company invests, their taxes are cut by up to 25p. The super deduction gives businesses investing in qualifying equipment a much higher tax deduction in the tax year of purchase than would otherwise normally occur through a ‘first year allowance’ (FYA). The allowances apply for capital investments made between 1 April 2021 and 31 March 2023.

The Annual Investment Allowance

These Super Deduction allowances will be available alongside the ongoing Annual Investment Allowance (AIA) which already gives 100% relief for costs of qualifying plant and machinery in the tax year of purchase. This applies to plant and machinery used solely for business, including items such as computers, from your business’s profits before tax. The annual investment allowance limit was temporarily increased to £1 million until 31 December 2021. The government has announced that this will now last until March 2023.

These changes make the UK’s capital allowance regime more internationally competitive. The government has introduced this policy because the Covid-19 pandemic has negatively impacted existing low levels of business investment. Much of the UK’s productivity gap with competitors is attributable to historically low levels of business investment. Making capital allowances more generous works to stimulate business investment. As a result, these measures can promote economic growth and counter business cycles. The super-deduction will give companies a strong incentive to make additional investments, and to bring planned investments forward.

What is the Recovery Loan Scheme?

A government backed loan scheme to support access to finance and ensure liquidity for UK businesses as they grow and recover from the disruption caused by COVID-19. It provides companies access to finance after the closure of the Bounce Back Loans (BBL) and the Coronavirus Business Loans Schemes (CBILS).

The Recovery Loan Scheme (RLS) was launched on 6 April 2021 to help Northern Ireland businesses access finance as they recover and grow following the Covid-19 pandemic. RLS effectively replaces the BBLS, CBILS and CLBILS funding. The new RLS facility aims to help businesses affected by coronavirus and can be used for business purposes, such as managing cash flow, investment and growth.

A key aim of the scheme is to improve the terms on offer to businesses. Businesses who have taken out a Coronavirus Business Interruption Loan Scheme (CBILS), Coronavirus Large Business Interruption Loan Scheme (CLBILS) or Bounce Back Loan Scheme (BBLS) facility can still access the new scheme. However, the amount they have borrowed under an existing scheme may limit the amount they may borrow under RLS in certain circumstances.

Unlike BBLS, which capped funds at £50,000, or CBILS, which was only accessible to more established businesses, the Recovery Loan Scheme is accessible to a greater range of companies and with a greater degree of financing options.

Types of finance available with the Recovery Loan Scheme

A lender can provide funding as one of the following facilities, a Term loan, an Overdraft facility, Invoice finance and asset finance. The maximum amount of a facility provided under the scheme is changing from £10m to £2m per business. Minimum facility sizes vary, starting at £1,000 for asset and invoice finance and £25,001 for term loans and overdrafts.

What is available through our panel of lenders?

» Borrow £25,001 to £2 million

» Terms of 2 to 6 years

» No early settlement fees

» No Personal Guarantee required up to £250,000

Who is eligible for a Recovery Loan?

There is no turnover restriction for businesses accessing the scheme. To secure a loan under the Government’s Recovery Loan Scheme, you’ll need to meet the following lender criteria:

» Minimum 2 years trading

» Limited company or limited liability partnership (LLP)

» Be Northern Ireland/UK based in its business activity

» Loan is for business working capital or investment

» Self-certify that COVID-19 has impacted business

» Not subject to insolvency proceedings

Personal guarantees

Personal guarantees are not permitted for facilities of £250,000 or less. Above £250,000, the maximum amount that can be covered under RLS is capped at a maximum of 20% of the outstanding balance of the RLS facility after the proceeds of business assets have been applied. No personal guarantees can be held over Principal Private Residences.

What supporting documents might I need to apply?

All applicants will be subject to a lender’s standard credit and fraud checks. You may need to provide certain documents when you apply for a RLS backed facility. These requirements vary from lender to lender, but often include:

»Management accounts

»Business plan

»Historic accounts

»Details of business assets

If you do not have everything listed here a RLS facility could still be an option to provide finance to support your business. Johnston Financial Solutions can liaise with your team and your accountant as necessary to prepare the application.

Summary of Changes Effective from January 2022

The Recovery Loan Scheme supports access to finance for UK businesses as they grow and recover from the disruption of the COVID-19 pandemic. Loans are available through a network of accredited lenders, listed on the British Business Bank’s website.

From 1 January 2022, the following changes will come into force:

» The scheme will only be open to small and medium sized enterprises

» The maximum amount of finance available will be £2 million per business

» The guarantee that the government will provide to lenders will reduce to 70%

How to apply

If your business has been affected by the coronavirus pandemic and you’re looking for commercial funding, the Recovery Loan Scheme (RLS) could be a good option for you. Get in touch with Johnston Financial Solutions today, and let’s talk through your plans for stability, research & development, supply chain innovation and growth. We understand that every business is unique. That’s why we take the time to understand what is important to you. By doing this, we ensure we apply the right solutions for you. Let our trusted practitioners help you find the perfect solution to fuel your business growth. Contact Johnston Financial Solutions to discuss your case, prepare an application and find an accredited lender to offer your business a Recovery Loan.

Get In Touch

Please click here to Book a Free Consultation with Mark Johnston.

Call +447803312874 or Email: [email protected]

Useful References

Autumn Budget and Spending Review 2021: documents

British Business Bank Recovery Loan Scheme

Budget 2021 Super Deduction

New temporary tax reliefs on qualifying capital asset investments

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