Recovery Loan Scheme - RLS

The Recovery Loan Scheme is a Government-backed scheme aiming to help businesses of any size across the UK affected by COVID-19, providing support for recovery and growth following the disruption of the pandemic.

It is designed to appeal to businesses that can afford to take out additional debt finance and can be used for any legitimate business purpose, including managing cashflow, investment and growth.

Subject to our lending policy, businesses can borrow between £250k to £5million, available with loan terms of up to six years and with satisfactory security being put in place for the loan.

The loan can be used for business investment, to refinance existing debt, and for cashflow purposes.

Businesses will be required to meet the costs of interest payments and any fees associated with the facility from the outset.

The Scheme provides Atom with a government-backed 80% guarantee against the outstanding balance of the facility. Please be aware that your customer will remain liable for the entire loan amount. Atom will seek to recover the outstanding balance of their loan from them, as well as the proceeds of any security they, or any security provider on their behalf, has given for the loan. It is only after this that we will look to realise the government guarantee.

Atom will be required to undertake standard credit, fraud, Anti-Money Laundering (AML) and Know Your Customer (KYC) checks for all applicants. When making our assessment, Atom may overlook concerns over short-to-medium term performance owing to the pandemic.

The Scheme is open to most businesses, who meet the eligibility criteria, regardless of turnover.

A business with an existing facility under either the Bounce Back Loan Scheme (BBLS), the Coronavirus Business Interruption Loan Scheme (CBILS) or the Coronavirus Large Business Interruption Loan Scheme (CLBILS) can still access the new scheme, providing it is eligible and with total borrowing subject to Atom’s assessment of affordability.

To be eligible for a facility under the Recovery Loan Scheme, a business must meet certain eligibility criteria including but not limited to:

• Be able to self-certify that it has been impacted by COVID-19;
• Be UK-based in its business activity and generate more than 50% of its turnover from trading activity (registered charities and further education establishments are exempt from this requirement);
• Be engaged in trading activity in the UK at the time it draws down the facility;
• Have a borrowing proposal that would be considered viable by Atom. In making their assessment, Atom may, but are not required to, disregard any concerns over a business’s short-to-medium term business performance due to the uncertainty and impact of COVID-19;
• Not be in collective insolvency proceedings. If the applicant is in scope of the Northern Ireland Protocol then (i) for micro and small enterprises the business was not subject to collective insolvency proceedings or in receipt of rescue aid; or (ii) for other businesses that are not micro and small enterprises they are not an “undertaking in difficulty”, as defined by the EU.
• A business cannot be a bank/ building society; an insurer or reinsurer (can be an insurance broker); a public-sector body; a state funded primary or secondary school; or an individual other than a sole trader or a partner acting on behalf of a partnership.

*As defined by the British Business Bank, trading activity for RLS is any trading or commercial activity that generates turnover. Rental income (as long as it is UK based) is classified as a service income and is acceptable for RLS.

The scheme went live on 6 April and is open until 31 December 2021, subject to review by the British Business Bank.

Yes, we want to support new customers as well as our existing customers. Taking part in the scheme means we can offer loans to small and medium businesses (SMEs) in these uncertain times.

Please submit an application on behalf of your customer via the Portal including the new RLS Supplementary form. We will also ask you to provide the following supporting documents with their application:

• Latest 2 years complete accounts, including P&L
• Up to date management accounts and trading performance evidence (including P&L and aged debtors/creditors list)
• Evidence of payroll costs and total turnover for 2019
• A copy of your customers business plan or response to COVID-19.

Atom’s maximum loan size is £5m.

The maximum amount a business can borrow under RLS cannot exceed the lower of:

• £10m; or the higher of
• (a) double wage bill for 2019 or the latest available year* (b) 25% of 2019 turnover; or (c) justified liquidity need for the next 18 months

The maximum a business can borrow is also subject to a limit of £30m per borrower group, where applicable. In this instance, private equity and venture capital linked businesses are disregarded for the purposes of defining a business group.

*This could include 2020 accounts if available.

If your customer has any existing CBILS or CLBILS facilities, the outstanding balance of these loans will need to be deducted from the maximum amount they can borrow.

Loans are available for up to a six-year commitment term.

An RLS loan can be used for any legitimate business purpose including, but not limited to, managing cashflow, or for investment and growth purposes.

Interest rates and fees charged by lenders will vary and will depend on the specific lending proposal, but lenders are required to pass on the economic benefit of the guarantee on to borrowers after taking costs into account including the scheme lender fee. Under the scheme, all upfront costs are capped 5% of the total loan amount. This is inclusive of valuation fees, legal fees and the arrangement fee.

Please speak to your BDM who can give you more information around fees and interest rates for RLS loans.

A personal guarantee may be required, at Atom’s discretion, however, no recovery action can be taken over a Principal Private Residence and recoveries are capped at a maximum of 20% of the outstanding balance of the RLS facility after the proceeds of business assets have been applied.

A worked example to show what this means in practice:

• Business borrows £1 million facility.
• Business pays off £400,000, then defaults, owing £600,000.
• Atom recovers £100,000 from other business assets secured, such as a debenture (e.g. stock), leaving £500,000 outstanding.
• Call on personal guarantee is £100,000 (20% of the outstanding balance, not the full £1m), leaving £400,000 as a loss to the Atom.

Yes. Businesses with CBILS, CLBILS and BBLS facilities can access RLS, providing they meet the eligibility criteria for RLS and any additional lending is considered affordable by Atom.

Yes, subject to meeting the scheme eligibility requirements and providing they do not borrow more than the maximum amount they are entitled to. The maximum amount a business can borrow across different facilities and schemes will depend on a lender’s assessment of affordability and scheme requirements.

Yes, where total financing needs (including any increase) are greater than the minimum facility sizes available under RLS.

Any refinancing will be considered as a new application for RLS, so will be subject to meeting the Scheme eligibility criteria. Re-financing can be sought with their existing lender or a different accredited lender.

There is no Business Interruption Payment (BIP) under RLS and therefore, any partial or full refinance of a BBLS or CBILS facility will require any remaining BIP entitlement (up to a maximum of 12 months from the outset of the original facility) to be foregone as part of the refinancing process.

Existing BBLS borrowers are able to refinance under RLS, however, borrower protections and scheme eligibility/ terms under these schemes differ.

Businesses can, in certain circumstances, use an RLS facility to refinance existing debt where total financing needs (including any increase) are greater than the minimum facility sizes available under the Scheme. For example, where a business is seeking to put itself on a more stable financial footing and/ or improve its working capital position, then, in principle, a RLS facility could be provided, providing the business fulfils the Scheme eligibility criteria. Refinancing can be undertaken with or without an increase in the original borrowing.

Atom’s Secured Lending Policy allows for applications from Limited Companies, PLCs, Limited Liability Partnerships (LLPs), Partnerships and Sole Traders, all domiciled in the UK.

Within the wider scheme, provided that they satisfy the other eligibility criteria, RLS is open to:

• Sole traders;
• Corporations;
• Limited partnerships;
• Limited liability partnerships;
• Co-operatives and community benefit societies; and
• Any other legal entity carrying out business activity in the UK with business activity operating through a business account.

The business must generate more than 50% of its turnover from trading activity in the UK (i.e. the sale of goods or services), unless they are a registered charity or further education establishment.

No. The following businesses are not eligible to apply:

• Banks, Building Societies, Insurers and Reinsurers (excluding Insurance Brokers);
• Public Sector bodies;
• State funded primary and secondary schools.

Yes. Companies that have received funding through EIS are eligible, provided that they satisfy the other Scheme eligibility criteria.

RLS uses two definitions for a borrower’s group in order to determine the maximum facility size a business is eligible for. For small, medium and large businesses within scope of the Northern Ireland Protocol, a borrower’s extended group is also used for assessing whether they are a micro or small business for the purposes of the “undertaking in difficulty” test.

Borrower group: This includes the borrower and all linked enterprises (broadly speaking any company that has control over a business or that the borrower has control over). This includes businesses that are linked through individuals but excludes business that are linked through private equity or venture capital ownership.

Borrower extended group: This includes the borrower and all partner* and linked** enterprises, as defined by the European Commission.

* A ‘partner’ enterprise describes the situation when an enterprise establishes certain financial partnerships with other enterprises, without one enterprise exercising effective direct or indirect control over the other. Partners are enterprises that are neither sole enterprises nor linked to one another. This is the case where an enterprise has a holding equal to or greater than 25% of the capital or voting rights in another enterprise and/or another enterprise has a holding equal to or greater than 25% in the enterprise in question.

** Linked businesses form a group by controlling the majority of voting rights of an enterprise, either directly or indirectly; or being able to exercise dominant influence over an enterprise. Enterprises are linked when one holds a majority of the shareholders’ or members’ voting rights in another; or can appoint or remove a majority of the other’s administrative, management or supervisory body; or there is a contract between them enabling one to exercise a dominant influence over the other; or one can exercise sole control over a majority of shareholders’ or members’ voting rights in another. A typical example is a wholly owned subsidiary. An enterprise is indirectly linked to a business if it is directly linked to an enterprise that is linked directly to the business.

Unless the business is in scope of the Northern Ireland Protocol, this test does not apply.

Medium-sized and large businesses that manufacture or sell goods and are either based in, or have operations in, Northern Ireland will still be required to pass the full EU ‘undertaking in difficulty’ test, as a requirement of the Northern Ireland Protocol. Micro and small businesses with the same characteristics will only be subject to a simplified EU ‘undertaking in difficulty’ test.

Medium-sized and large businesses that are involved in the generation of wholesale electricity will also be required to complete the full EU ‘undertaking in difficulty’ test.

The Northern Ireland Protocol only applies to subsidies that affect trade in goods and electricity between Northern Ireland and the EU. Therefore, in general, businesses that provide services in Northern Ireland do not need to pass the EU “undertaking in difficulty” test to gain access to the scheme. There are certain limited circumstances in which a subsidy to a business that provides services could still distort competition or affect trade of a particular good between Northern Ireland and the EU and these businesses will need to pass the EU undertaking in difficulty test.

As part of the application, businesses will need to complete three simple questions, which will assess whether or not a borrower is potentially in scope of the Northern Ireland Protocol:

• Does the business participate in wholesale electricity markets in Northern Ireland?
• Is the business based in Northern Ireland?
• Does the business have operations in Northern Ireland?

If a business appears to be in scope of the Northern Ireland Protocol, the EU ‘undertaking in difficulty’ test will be applied. If the business does not pass the EU ‘undertaking in difficulty’ test, for reasons other than it being subject to collective insolvency proceedings, it may have the opportunity to complete a more detailed questionnaire to determine whether or not it is in scope.

Where businesses are not in scope of the Northern Ireland Protocol, they must not be in collective insolvency proceedings.

Businesses who have entered into a Company Voluntary Arrangement since 16 March 2020 may still be eligible for the Scheme subject to a lender’s viability assessment.

Under the EU test, ‘undertakings in difficulty’ include:

• Individuals or companies that have entered into collective insolvency proceedings;
• Limited companies that have accumulated losses greater than half of their share capital in their last annual accounts (this does not apply to SMEs less than 3 years old);
• Partnerships, limited partnerships or unlimited liability companies that have accumulated losses greater than half of their capital in their latest annual accounts (this does not apply to SMEs less than 3 years old);
• Undertakings that have received rescue aid and have not yet reimbursed the loan or terminated the guarantee, or have received restructuring aid and are still subject to a restructuring plan;
• Companies that are not SMEs* where, for each of the last two accounting years: i) the book debt to equity ratio has been greater than 7.5; and ii) the EBITDA interest coverage ratio has been below 1.0.

The full EU ‘undertaking in difficulty’ test does not apply to micro or small businesses. Micro and small businesses are businesses that have fewer than 50 employees and less than £9,000,000 in annual turnover and/or annual balance sheet total. Micro and small businesses must not be (a) subject to collective insolvency procedure under national law, or (b) in receipt of rescue aid (which has not been repaid) or restructuring aid (and are still subject to a restructuring plan) at the time they apply for a scheme facility.

*SMEs are defined as a business with less than 250 employees and either (a) a turnover of less than £45.00m, or (b) a balance sheet of less than £38.75m.

Applicants will be subject to Atom’s standard credit and fraud checks.

Yes. Atom must consider a business to be viable, and in making their assessment of a borrowing proposal, they have the option of disregarding any concerns over short-medium term business performance due to the uncertainty and impact of COVID-19. However, lenders are not required to overlook these concerns and all final lending decisions are fully devolved to Atom.

A business must also self-certify that it has been impacted by COVID-19.

Interest payments and capital repayments will typically start a month after taking out a facility and be monthly or quarterly thereafter. Unlike BBLS and CBILS, the government does not provide a 12-month ‘Business Interruption Payment’ for RLS.

Where required, information about facilities provided to UK businesses may be published on a new UK Government transparency database. Details of the UK reporting requirements are currently subject to consultation, and further information will be available in due course.

In addition, for businesses in scope of Article 10 of the Northern Ireland Protocol, information will be reported to the European Commission, who may publish such details on the European Commission’s State aid transparency website.

Information that may be published is a subset of the information a business provides in their loan application, including:

• The identity of the borrower, for example, the name of your business, or potentially your name if you are a sole trader or partnership;
• Type / size of business;
• Region where the business is located;
• Sector in which the business operates;
• Date the aid was granted; and
• The amount of aid granted.

The information reported is related to the business but may include personal data if you are a sole trader or a partnership or your business name includes reference to a natural person.

Further information on how BEIS and the BBB process and share data can be found in the BEIS Privacy Notice and the BBB Privacy Notice.

RLS aims to help businesses affected by COVID-19 who can afford to take on additional debt finance to access the finance they need, including for managing cashflow, investment and growth. As the economy is expected to gradually recover through 2021, the new single successor scheme aims to be more targeted than the emergency COVID-19 schemes. Key differences include:

• The requirement for businesses to pay interest and fees from the outset;
• All eligible businesses will be subject to standard customer credit, fraud, Anti-Money Laundering (AML) and Know Your Customer (KYC) checks. In making their assessment, lenders’ may, but are not required to, disregard any concerns over a business’s short-to-medium term business performance due to the uncertainty and impact of COVID-19;
• The requirement for lenders, in the absence of the scheme, to be unwilling to offer a facility on similar terms either at all, or at the same or a lower price; and
• Businesses who have taken out a CBILS, CLBILS or BBLS loan will be able to access the new scheme, although the total amount a business can borrow will depend on their lender’s assessment and scheme requirements.

No. CBILS, CLBILS and BBLS, including BBLS Top-Ups, closed for applications on the 31st March 2021. New applications are no longer being accepted under these schemes.

Yes, as long as the business meets the other eligibility criteria as set out by Atom and the British Business Bank (BBB), and the rental properties are in the UK. The BBB defines trading activity as “any trading or commercial activity that generates turnover”, this includes rental income.