The government-backed Recovery Loan Scheme (RLS) is considered by some to be ‘the loan of last resort.’ In this month’s Swoop Advisor Insights webinar, the team discussed why there are still options for businesses that couldn’t get one
Each month, the Swoop Advisor Insights Webinar answers questions and discusses issues brought to the table by members of Swoop’s Advisory community. In our last session, we were asked:
If the RLS is intended as a loan of last resort, why is it still so hard to get one?
Rhys Cunnah, Head of Unsecured and Asset Finance at Swoop, explained that there are two reasons why a business might be refused a loan under the RLS scheme, one of which is that the customer has been looking in the wrong place.
For many business customers, the first port of call is their regular bank, or a major institution with which they are familiar, ignoring the tier two lenders. As Swoop works with over 1,000 lenders in a crowded, specialist market, such an oversight is understandable.
Once a lender has been approached, it is down to that lender as to whether they are prepared to make the loan or not.
Under existing RLS rules, funders have been advised by the government on the criteria under which they can lend: remember, the government may be guaranteeing a proportion of the loan, but they don’t want to lose their money if they can help it. Therefore, the loan must be made under existing responsible lending rules, which can include taking into account a business’s pre-trading and credit history as well as proving that the funds are required because of Covid.
Lenders’ criteria differ, particularly when you consider the number of specialist funders in the market. Being turned down for funding by one lender does not mean that every lender will say ‘no’.
The second reason for being refused funds under RLS would be that the scheme simply isn’t right for the business in question. For example, one of the rules set out by the government was that the maximum interest rate must not exceed 14.99 percent.
If your history means that you would have to take a loan at a higher rate, your business would not get funded under RLS, though there may be other products available that would be a better fit.
Finally, it is important to remember that with financial products, you are not buying them off the shelf: lenders will often need to weigh up the risks and requirements of each business asking them for funds before they agree to the loan. By partnering with Swoop, customers have found that they have a wider choice of lenders and greater insight into their lending requirements – ultimately giving them a better chance of achieving their funding goals one way or another.
The monthly Swoop Advisor Insights Webinar is an opportunity for you to share your views and ask your questions of the Swoop team. Sign up to receive invitations to future events and watch previous episodes here.