Recovery loan scheme ‘off to a slow start’
The government’s recovery loan scheme (RLS) is believed to have got off to a slow start.
Applications were in the “low thousands” in the first weeks of the scheme, according to the Financial Times.
Lobby group the Federation of Small Businesses (FSB) said early signs are that take-up is slow and some firms are struggling to navigate the paperwork required to apply through it.
“Some business owners have told us they’ve been focussing on extending their bounce back or interruption loan facilities, others are with banks that are yet to be accredited, and we need to see swift action on that front,” Martin McTague, vice chair of the FSB, said.
“Lenders should be as sophisticated as possible when assessing applications, utilising open banking to make truly informed decisions, rather than putting the admin burden onto small business owners who are, in this climate, solely focussed on trying to recover from a year unlike any other.”
He added that the scheme should be amended to allow loan values of less than £25,000.
It comes as the British Business Bank (BBB) published the eligibility criteria to become accredited for the RLS on Friday (23 April) more than two weeks after the funding programme was opened.
The RLS was launched on 6 April and up until the end of last week the accredited lenders were dominated by high street banks.
CBILS accredited lenders were invited to reapply to provide the RLS but the criteria was only made public at the end of last week.
It is understood that peer-to-peer lenders Funding Circle and Assetz Capital have applied for accreditation but are still awaiting approval.
Unlike CBILS and bounce back loans, interest and fees need to be paid by the business from the outset and the annual effective rate of interest upfront and other fees cannot be more than 14.99 per cent.
Read more: Funding Circle and Assetz Capital expect to join Recovery Loan Scheme
Goodbody analyst John Cronin said these factors meant he wasn’t surprised takeup was slow.
“Why would a business opt for a high interest RLS, unless absolutely needed, when it could have plucked for cheap BBLS or CBILS funding just a few weeks ago,” he said.
“Take-up is likely to rise over time, we suspect, as the RLS becomes the only option available for businesses in need of funding, as companies work through their surplus of liquidity and as more lenders are accredited.”
There are 23 accredited lenders under the RLS as of this morning (26 April).
The RLS guidance also has the same exclusion for retail P2P money that was in the CBILS documentation.
“Where the applicant is a platform or marketplace lender which pairs borrowers and individual lenders but does not provide credit to underlying borrowers or assume the rights of the person who provided credit, it will not be considered a suitable delivery partner for RLS for its own account,” It said.
“This means that an institutional investor lending through a platform rather than the platform itself should be accredited, with the platform entering into suitable arrangements to be able to originate loans under the scheme.
“Applicants must be able to demonstrate that the platform that they originate facilities through is able to ring-fence institutional funds and comply with the RLS accreditation. Funding from retail and/or individual investors in a Lender is not permitted without the prior consent of the BBB
The British Business Bank said it invited all lenders previously accredited under CBILS to apply to become accredited under the new scheme and new ones would be added once approved.
Read more: Platforms mixed on Covid loan schemes’ success