Why you should think about taking advantage of the Recovery Loan Scheme
Greater flexibility compared to previous schemes including funding to support growth either organically or through acquisition
The Recovery Loan Scheme (RLS) was launched in April this year as the replacement for the Bounce Back Loan Scheme (BBLS), Coronavirus Business Interruption Loan Scheme (CBILS) and Coronavirus Large Business Interruption Loan Scheme (CLBILS). Between them the previous three schemes facilitated almost £80 billion of government guaranteed or partially guaranteed loans to UK businesses of all sizes. BBLS accounted for the lion’s share of this total (£47.4bn), followed by CBILS (£26.4bn) and CLBILS (£5.6 bn).
Although each scheme had different criteria the overall aim was to encourage banks and other lenders to make funding available to businesses to support them through the immediate impact of the covid crisis. The focus was on ensuring businesses had sufficient working capital to keep them afloat until more normal trading patterns were re-established.
RLS shares a similar objective of encouraging lenders to make funding available to businesses through an 80% government backed guarantee, however, its criteria is more flexible to suit the needs of businesses looking to grow rather than just survive. Growth need not just be organic either, as the scheme also covers funding for growth by acquisition.
At ThinCats we saw the early signs of increased appetite for M&A funding from Q3 last year which was borne out in the very high levels of M&A activity reported in the first half of 2021. Since we became accredited as a lender under RLS in July we have seen strong demand to fund organic expansion plans and acquisitions – increasingly for businesses backed by private equity investors.
A recent example of this type of transaction was funding to support the acquisition of Vietnamese restaurant chain Pho by Trispan, a private equity investor specialising in this sector.
RLS is closest to CBILS in terms of the type of businesses that can benefit, although there is one key difference between the schemes; the 12 month interest-free period whereby the Treasury paid the first year’s interest under CBILS is not available for RLS.
On the other hand, the maximum loan size for RLS is £10m per borrower against only £5m for CBILS and, as mentioned earlier, RLS loans can be used for a much wider range of purposes than CBILS. Following on from a strategic investment in ThinCats by Wafra Capital Partners in June 2021, we have substantial amounts of capital available through RLS to support mid-sized businesses.
Due to the larger maximum loan size permitted under RLS we are offering additional flexibility for loans of £5m and above. These special terms include:
Up to £15m funding per group
Although the maximum loan size per business entity permitted under RLS rules is £10 million, ThinCats will support different business entities within the same group up to a combined total of £15 million.
Lower rates and 25bps margin ratchet
Reflecting the benefit of the 80% government backed guarantee, ThinCats’ borrower rates have been reduced and may, depending on the business and sector dynamics, be reduced further when leverage multiples fall below certain levels. For example, if a loan has an initial leverage multiple of 2.5x EBITDA, the ongoing interest rate may reduce by 25 basis points if the leverage multiple falls below pre-agreed thresholds.
Capital repayment holiday
Up to 12 months capital repayment holiday considered on all loans with the potential for 100% bullet payments depending on leverage multiples
Even if you are not considering an RLS loan, we are assessing all funding proposals as a matter of course to see if they qualify, as the borrower is likely to pay a lower interest rate from being within the RLS programme.
For more details please contact your ThinCats regional business development director
Learn more about the eligibility requirements and core features of the RLS programme here.
