Recovery Loan Scheme

The Recovery Loan Scheme (RLS) is a UK government-backed finance programme designed to help businesses access loans and other forms of finance that they might not otherwise receive. It replaced the pandemic-era emergency schemes — the Bounce Back Loan Scheme and the Coronavirus Business Interruption Loan Scheme (CBILS) — in April 2021. Since 1 July 2024, new guaranteed lending has been offered under its successor, the Growth Guarantee Scheme, which keeps the same basic model of a government guarantee given to accredited lenders. The British Business Bank publishes the current terms of the scheme that is open.

The scheme is managed by the British Business Bank and delivered through accredited commercial lenders.

How the Scheme Works

Under the RLS, the government provides a guarantee to the lender, covering a percentage of the outstanding balance if the borrower defaults. This guarantee encourages lenders to offer finance to businesses that might otherwise be declined due to insufficient security or a limited trading history.

The borrower deals directly with the lender and repays the facility on commercial terms. The government guarantee does not make the borrower liable for less — you are still fully responsible for repaying the loan.

Key Parameters

Types of Finance Available

The RLS covers four types of finance facility:

Term Loans

A fixed amount borrowed and repaid over an agreed period with regular instalments. This is the most common form and is comparable to a standard business loan, with the government guarantee making it accessible to businesses that might not qualify on their own.

Overdrafts

A revolving credit facility attached to your business bank account, allowing you to draw funds up to an agreed limit and repay as cash flow allows. The maximum term under the RLS is 3 years.

Invoice Finance

An advance against your unpaid sales invoices, providing cash before your customers pay. This includes both invoice factoring and invoice discounting facilities.

Asset Finance

Borrowing to purchase equipment, vehicles, or machinery, with the asset itself serving as security. This includes hire purchase and finance lease arrangements.

Eligibility

To qualify for the Recovery Loan Scheme, a business must meet all of the following criteria:

• Be trading in the UK
• Have a viable business proposition in the lender’s assessment
• Be able to self-certify that the finance will be used for a legitimate business purpose
• Not be in collective insolvency proceedings (administration, liquidation, or bankruptcy)

There is no turnover cap — businesses of any size can apply, from sole traders to large companies. However, the scheme is primarily aimed at small and medium-sized enterprises (SMEs) that cannot access the finance they need on the open market.

Who Cannot Apply

• Businesses that were already in difficulty before applying
• Banks and financial institutions
• State-funded primary and secondary schools
• Public-sector organisations

How the Guarantee Fee Works

The borrower pays a guarantee fee to the government (through the lender). This covers the cost of the government guarantee and is calculated as a percentage of the outstanding guaranteed balance. The fee varies depending on the facility type and term but is typically added to the overall cost of the finance.

The guarantee fee is separate from the interest rate charged by the lender. Total borrowing costs include both the lender’s interest rate and the guarantee fee.

Applying for a Recovery Loan

Step 1: Check Eligibility

Confirm your business meets the basic criteria. You do not need to have borrowed under previous government schemes (BBLS or CBILS) to apply.

Step 2: Choose a Lender

The British Business Bank publishes a list of accredited lenders on its website. These include high-street banks (Barclays, HSBC, Lloyds, NatWest), challenger banks, and specialist finance providers.

Step 3: Apply to the Lender

You apply directly to the lender, not to the British Business Bank or the government. The lender assesses your application using their normal commercial lending criteria, with the government guarantee providing additional comfort.

Step 4: Provide Documentation

Expect to provide:

• Business accounts or management accounts
• Cash flow forecasts
• Details of existing debt
• A business plan or explanation of how the funds will be used
• Personal financial information if a personal guarantee is required

Step 5: Receive a Decision

The lender will assess your application and make a decision. If approved, the terms will be set out in a facility letter, including the interest rate, repayment schedule, guarantee fee, and any security or personal guarantee requirements.

RLS vs Previous Government Schemes

The RLS is less generous than the pandemic schemes in terms of the guarantee level and the absence of an interest-free period, but it is available for any legitimate business purpose, not just pandemic recovery.

Using an RLS Loan Alongside Other Finance

The RLS can be used alongside other forms of finance. For example, a business might use:

• An RLS term loan for capital expenditure
• An existing overdraft for day-to-day cash flow
• Invoice finance for managing trade receivables

However, the total RLS facility across all lenders cannot exceed £2 million per business group.

Repayment and Default

RLS facilities are repaid on standard commercial terms. If a borrower defaults:

• The lender pursues normal recovery procedures (including enforcing any security or personal guarantee)
• The government guarantee covers 70% of the lender’s remaining loss after recovery
• The borrower remains liable for the full debt — the guarantee does not write off the borrower’s obligation

Defaulting on an RLS loan has the same consequences as defaulting on any commercial loan, including potential County Court Judgments (CCJs), damage to your credit rating, and enforcement of personal guarantees.