An Opportunity for Lending Institutions to Partner with the British Business Bank
Dated 1 July 2023
- 1. Introduction
- 1.1 The Recovery Loan Scheme
- 1.2 The British Business Bank
- 1.3 RLS: Opportunity for New Lenders to join as Accredited Lender
- 2. How can RLS be used by Accredited Lenders?
- 2.1 Key Terms
- 3. The Accreditation Process for Prospective New Lenders
- 3.1. Introduction
- 3.2 Detailed Guidance
- 3.3 Assessment of Expressions of Interest and Formal Proposals
- 3.4 Exceptions
- 3.5 Delivery of Expressions of Interest and Formal Proposals
- 4. Requirements
- 4.1 Lending to Businesses trading in the UK
- 4.2 Critical Mass
- 4.3 Interest and Fees
- 4.4 Availability of Capital
- 4.5 Financial Status, Operations, Management Team and Track Record
- 4.6 Regulation and Tax Domicile
- 4.7 Legal Structure
- 4.8 Fraud & Financial Crime Risk Management
- 5. Legal Notice
1.1 The Recovery Loan Scheme
The Recovery Loan Scheme (the “RL Scheme” or “RLS”) is a scheme to support access to finance for smaller UK businesses as they look to invest and grow. RLS is scheduled to run until 30th June 2024.
The RL Scheme can be used for business purposes, including, managing cashflow, investment and growth. It is designed to appeal to businesses that can afford to take out additional finance for these purposes. It will support facility sizes of up to £2million for borrowers outside the scope of the Northern Ireland Protocol1 . Borrowers in scope of the Northern Ireland Protocol may borrow up to £1million unless they operate in a sector where aid limits are reduced.
The British Business Bank administers the scheme on behalf of the Government.
1.2 The British Business Bank
The British Business Bank (“BBB”) is an economic development bank which is 100% owned and funded by the UK Government. Established on 1 November 2014, the BBB’s aim is to drive sustainable growth and prosperity across the UK, and to enable the transition to a net zero economy, by supporting access to finance for smaller businesses.
The BBB has four key objectives:
- Driving sustainable growth – ensuring smaller businesses can access the right type of finance they need to start, survive and grow;
- Backing innovation – ensuring innovative businesses can access the right capital to start and scale;
- Unlocking potential – unlocking growth by ensuring entrepreneurs can access the finance they need regardless of where and who they are;
- Building the modern, green economy – financing groundbreaking solutions to climate change and helping smaller businesses transition to net zero so they thrive in a green future.
BBB manages RLS on behalf of the Secretary of State for Business and Trade (“the Secretary of State”) through its subsidiary British Business Financial Services Ltd.
1.3 RLS: Opportunity for New Lenders to Join as Accredited Lenders
The RLS lender accreditation process is open to UK incorporated and UK registered branches of overseas resident finance providers active in small business lending in the UK, as detailed further in Section 3 and Section 4 below.
2. How can RLS be used by Accredited Lenders?
RLS is a risk-sharing partnership between Government and the lender, to enable lending which would not otherwise be possible or to facilitate lending at a lower price than would otherwise be available. The RLS guarantee is to the lender, not the borrower. The borrower remains liable for 100% of the debt at all times.
A key principle of RLS is that the lender would either:
- a. not have been prepared to offer a commercial facility for the same amount on similar terms; or
- b. would only have been prepared to offer a commercial facility on similar terms at a higher price.
RLS is designed to improve the terms on offer to borrowers, but if a lender is in a position to offer the option of a commercial facility on better terms than an RLS facility, they should do so.
RLS is versatile and can be used with four types of debt product: term loans, invoice finance facilities, asset finance facilities and overdrafts/revolving credit facilities (committed and uncommitted).
RLS can be used when the borrower has a viable business proposition assessed according to a lender’s underwriting policies in place from time to time. This may, but is not required to, be without regard to any concerns over its short-to-medium term business performance due to the uncertainty and impact of Coronavirus (COVID-19) (The “Borrower Viability Test”).
Up to £2m facility per business (including its group)
The Maximum Amount of a facility (or facilities) provided under the scheme is £2m per business group (for borrowers in scope of the Northern Ireland Protocol (“NI Borrowers”) the Maximum Amount is £1m and will also be further reduced if operating in certain specified sectors). Minimum facility sizes vary, starting at £1,000 for asset and invoice finance, and £25,001 for term loans and overdrafts.
Secured and unsecured lending
RLS may be used for both secured and unsecured lending. The lender would be expected to take security, where available, in line with the lender’s own lending policy.
Personal guarantees can be used for RLS Facilities at the lender’s discretion in line with their normal lending policy.
Neither a borrower’s nor a guarantor’s principal private residence can be taken as security or in support of a personal guarantee for an RLS backed facility.
The interest rate at which the Lender is prepared to lend at, and any associated fees, should be based on a lender’s normal pricing framework. However, the full net economic benefit of the RLS guarantee to the lender (including any reduction in risk and capital requirements) must be passed to the borrower by way of a proportionate reduction in pricing of the RLS facility.
Role of the Accredited Lender
BBB aims to keep the operation of RLS as straightforward as possible for participating lenders. The credit decision-making rests with the lender in exactly the same way as for any other commercial transaction, provided that the lender is required to verify the transaction and the borrower’s eligibility for RLS against the Eligibility Criteria set out in the guarantee agreement. This process involves using a bespoke guarantees portal provided by BBB.
In keeping with that delegation of decision-making, no borrower has an automatic entitlement to receive an RLS-backed facility even if they believe they satisfy the Eligibility Criteria – the decision to provide a facility is for the lender to make. Differences in lending appetite and market positioning between lenders can justifiably mean that the same borrowing proposal may receive a different response from different accredited lenders.
A lender’s ability to offer a facility under the RL Scheme is dependent upon the guarantee provided from the UK Government. The assistance provided through RLS, like many Government-backed business support activities, is regarded as a subsidy and is deemed to benefit the borrower. There is a limit to the amount of subsidy that may be received by a borrower over any relevant rolling three-year period (as more fully detailed in the guarantee agreement) and any previous subsidy may reduce the Maximum Amount available.
The terms of the RL Scheme for borrowers outside the scope of the Northern Ireland Protocol (“GB Borrowers”) reflect the Minimal Financial Assistance (“MFA”) provisions within the UK Subsidy Control Act (“SCA”). For NI Borrowers, RLS is designed to comply with the European Union’s de minimis State aid regime. For GB Borrowers who are subject to the UK’s domestic subsidy regime, the requirements mean that where subsidies are >£100k information about individual borrowers and their facilities must be disclosed to the UK Government and published on the relevant transparency databases. There is currently no reporting for NI Borrowers under the European Union Commission’s de minimis State aid rules.
Lenders will need to identify borrowers that fall within the scope of the Northern Ireland Protocol during their origination processes and when reporting on scheme facilities to the BBB. A lender will need to ask the borrower two questions (the Location Questions) to determine whether the business is in scope of these requirements. If a borrower has been identified as being in scope of the Northern Ireland Protocol on the basis of the Location Questions, an NI Borrower Maximum Amount guide is available to help lenders determine the Maximum Amount for that borrower.
2.1 Key Terms
2.1.1 Business Eligibility
- An enterprise (including its group) with a turnover not exceeding £45m per annum and generating more than 50% of its turnover from trading activity2 in the UK who requires funding to support trading or commercial activity in the UK.
- Most industrial sectors are eligible3.
- Must have passed the Borrower Viability Test.
- Must not be a “business in difficulty”, including not being in relevant insolvency proceedings.
- Must be within the appropriate subsidy control threshold(s).
- Must not have breached the rules of RLS or any government guarantee scheme.
- Must meet the Lender’s anti-fraud policies and standards.
2.1.2 Scheme Criteria
- RLS can be used to facilitate new lending, and, to a limited extent, refinance other existing debt including lending under the Enterprise Finance Guarantee Scheme (“EFG”), the Coronavirus Business Interruption Loan Scheme (“CBILS”), the Coronavirus Large Business Interruption Loan Scheme (“CLBILS”), the previous phases of the Recovery Loan Scheme and/or Bounce Back Loan Scheme (“BBLS”), (together the “Other Schemes”); however, refinancing of an existing commercial or RLS facility (previous or this iteration) with the same lender is limited to a maximum 20% of a lender’s annual portfolio of RLS-supported lending.
- RLS can be used to support term loans, overdrafts/revolving credit facilities and asset finance facilities and invoice finance facilities.
- RLS facilities cannot be used for Export Related Activities (as defined in the Guarantee Agreement ).
- For GB Borrowers, the Maximum Amount is up to £2m (depending on any previous relevant subsidies).
- For NI Borrowers, the Maximum Amount is up to £1m (depending on any previous relevant subsidies).
- For NI Borrowers de minimis also contains certain rules for businesses operating in the agriculture, aquaculture and fisheries and road haulage sectors, leading to:
- Lower Maximum Amounts for each of these sectors; and
- Certain restrictions on the uses of proceeds in these sectors.
- Minimum facility sizes vary, starting at £1,000 for asset and invoice finance, and £25,001 for term loans and overdrafts.
- Businesses that have taken out an EFG, CBILS, CLBILS, BBLS or previous phase RLS facility are able to access RLS, although the amount they have borrowed under a previous scheme may, in certain circumstances, limit the amount they may borrow under RLS based on subsidy provided.
- Facility terms can range between three months and six years, with a three year limit for overdrafts and invoice finance.
- Terms and pricing are commercial matters for each lender, subject to the requirement to pass on the full net economic benefit of the RLS Guarantee.
- A lender is not permitted to take warrants or any option to convert in conjunction with the origination of an RLS Facility.
- No guarantee fee is charged to the borrower.
- The lender is required to pay a Scheme Lender Fee in respect of each RLS facility to the Secretary of State as a contribution towards the cost of providing the guarantee. The fee is equal to the balance5 of such RLS facility multiplied by a margin of 150bps in all cases other than:
- lending under the invoice finance variant, where the margin will be 100bps; and
- lenders who are accredited for Community Interest Tax Relief (‘CITR’) or Social Investment Tax Relief (‘SITR’), where the margin will be 100 bps.
multiplied by the number of days in the relevant monthly calculation period, divided by 365.
2.1.3 Terms between the Accredited RLS Lender and BBB
The key terms and conditions relevant to lenders encompass the following:
- All accredited scheme lenders are required to enter into a standard form RLS guarantee agreement.
- The RL Scheme guarantee is to the lender, not the borrower. For asset finance and invoice finance, the lender can choose whether they require the RLS guarantee to cover the whole of the proposed facility or only part of it.
- BBB provides each lender with a lending limit for the total amount that such lender may offer through RLS transactions; this applies to a set period of time. Lenders cannot exceed this lending limit without agreement in writing from BBB. Requests during the life of the scheme for an increased lending limit will be subject to a further approval process using a risk and judgement-based approach taking into account, amongst other things: the lender’s projected deployment and operational capacity; RLS track record and audit findings; the financial stability and sustainability of the lender; availability of capital; and value for money for Government and the availability of unused capacity at the point the lender is seeking an increase in its lending limit. If a lender proposes changes to its corporate and/or lending structure in connection with any funding increase, BBB reserves the right to charge for its time and other costs associated with such amendments. These costs will be notified to a lender in advance.
- Subject to the application of the prescribed eligibility criteria, decisions as to whether a customer is eligible are within the discretion of the lender. Whilst the UK Government provides a guarantee to the lender, neither the UK Government nor BBB have any role in the eligibility assessment or facility management processes (at the level of the individual transaction) and are not party to the facility agreement between the borrower and the lender.
- The lender records all eligible transactions on the guarantees portal. The guarantees portal records details, the amount and terms of the lending, certain in-life events and/or extension of the terms of the lending, borrower default and claims against the guarantee of all RLS-supported facilities. Lenders must use the guarantees portal provided by BBB to enter and update RLS facility details in a timely and accurate manner in accordance with the guidance issued.
- In the event of a borrower defaulting, the lender may claim up to 70% of the outstanding principal (net of any recoveries) for term loan and asset finance and 70% of the outstanding principal, interest and fees (net of any recoveries) for invoice finance and revolving credit facilities from the Guarantor while bearing the remaining 30% of the loss.
- Any recoveries made by the lender after making a claim on the guarantee must be repaid on a 70%/30% basis (70% must be repaid to HMG).
- Lenders must ensure relevant customer-facing and back office staff in their organisation (e.g. Relationship Managers, Credit Sanctioners etc.) and any intermediaries engaged by the lender (for example, brokers), are trained to appropriately apply and administer RLS, and that they manage their internal communication so that all relevant staff receive and understand the information relevant to them.
- Lenders must work with BBB on joint promotions, accurately convey scheme terms and conditions on all marketing materials and assemble case studies for RLS use, in order to market the RLS programme appropriately.
- Lenders undergo periodic audits which include, inter alia, analysis of a sample of transactions to check that scheme eligibility rules and processes have been followed, including whether the full net economic benefits of the RLS Guarantee has been passed on to borrowers in the form of lower borrowing costs than would otherwise have been charged and whether adequate preventative and detective financial crime and fraud controls and associated reporting processes are in place.
- BBB provides training, communications and guidance materials for lenders.
- All accredited scheme lenders will calculate and pay their Scheme Lender Fee to the BBB on a monthly basis.
- BBB has a dedicated RLS team available to answer queries from lenders and provide guidance as required.
- BBB holds periodic meetings with lenders, both bilaterally and collectively as appropriate, to discuss scheme performance, best practices and any issues.
3. The Accreditation Process for Prospective New Lenders
BBB acts as an agent for the Secretary of State under delegated authority. The counterparty to the legal documentation will be the Secretary of State. BBB welcomes proposals from any applicant able to meet the requirements stipulated in Section 4 of this document.
Unless an applicant is in one of the categories set out in paragraph 3.4 (Exceptions) below, applicants are expected to conform to a 4-stage accreditation process, as detailed in paragraph 3.2 (Detailed Guidance) and outlined below.
- Expression of Interest: short submission (please refer to Annex 1) outlining in brief how the applicant meets the requirements for lenders participating in the RLS Scheme.
- Formal Proposal: detailed submission, providing detailed information on the applicant’s organisation and its intended use of RLS. Lenders will need to state which type or types of RLS lending they would like to become accredited for: term loans, overdrafts/revolving credit facilities, asset finance facilities and/or invoice finance facilities. The Formal Proposal form and due diligence process will vary to take account of these different types of finance.
- Review and Approval: due diligence will look at the applicant’s business, its lending strategy for existing and proposed RLS lending, historical and expected credit performance, approach to ESG issues and net zero transition, fraud and financial crime processes and controls, financial status, corporate group structure, lending structure, governance, risk management and compliance frameworks, ownership structure, sources and cost of funding and availability of capital, and track record of lending. The applicant will be required to evidence that the full net economic benefit of the RLS guarantee is passed on to borrowers through lower pricing than it may otherwise have had without the benefit of the guarantee. This evidence should be set out on the Bank’s Economic Benefit Pass Through pricing table (provided at Formal Proposal stage). If requirements are satisfied, a recommendation will be submitted to the appropriate BBB’s governance forum for a decision on whether to offer accreditation in principle, subject to fulfilling a number of further conditions. The offer of accreditation in principle will include an appropriate lending limit, which is at BBB’s sole discretion. The lender will be notified of the decision via email.
- Completion and Accreditation: The lender needs to sign the RLS guarantee agreement and related legal documents, and have satisfied conditions precedent, including training staff.
Lenders already accredited for at least one type of lending (term loan, overdraft/revolving credit, asset finance and/or invoice finance) can approach BBB informally if they would like to apply RLS to additional types of lending. Once a lender has been accredited for a particular type of RLS lending, any application for additional types of lending will be subject to a further approval process taking into account, amongst other things, the lender’s expertise and experience in the additional type of lending, proposed lending strategy and projected deployment, RLS track record and audit findings, the financial stability and sustainability of the lender, sources and cost of funding and availability of capital.
BBB may request clarification or additional information at any point in the process.
Decisions made by BBB about the Scheme and / or about the accreditation to the Scheme will be taken by it on a case by case basis at the time using a risk and judgment-based approach, taking into account such factors as BBB may consider relevant. BBB may consult with the Department of Business and Trade, or other government departments with respect to applications for accreditation from time to time.
By way of illustration, these factors may include (but shall not be limited to):
- The desirability of building an optimal panel of accredited RLS lenders to deliver the objectives of the scheme;
- The applicant’s commitment to participating in the UK’s transition to a net zero economy and incorporating ESG considerations into its future activities;
- Evidence of appropriately documented financial crime and fraud policies and standards and the strength of the applicant’s processes and controls to prevent, detect, investigate, report and evaluate fraud and financial crime;
- The financial status or financial sustainability of the applicant;
- Management and operational capabilities being adequately demonstrated;
- The applicant’s track record of lending being of sufficient depth and/or being commensurate with its projected RLS lending;
- Historic performance of the lending portfolio;
- Projected RLS deployment being evidenced by data submitted;
- The applicant having a track record in the product it is proposing to deploy for RLS;
- The requested allocation having a sufficiently significant impact on the market;
- There being sufficient information and/or evidence provided relating to sources or availability of capital and the sources of capital not being outside of BBB’s risk appetite;
- Proposed pricing, cost of funds and pass through of economic benefit being consistent with the aims and purpose of the scheme;
- Business model and risk sharing arrangements being consistent with scheme principles;
- Satisfaction of BBB’s KYC and tax policy requirements;
- The proposal and/or applicant being within BBB’s risk appetite; and
- The funding structure fitting within the principles of RLS and/or the terms of the guarantee agreement (see Section 4 of this document).
In addition, in line with BBB’s objective to manage taxpayer resources efficiently reflecting its use of public money, an applicant may be declined if the cost-effectiveness in progressing an applicant is deemed ultimately to provide limited value for money.
BBB will assess applications based on the requirements set out in Section 4 of this document. However, please note that satisfaction of minimum requirements does not guarantee accreditation. BBB reserves the right not to proceed with an application or to decline to accredit any applicant at any stage.
As a decision may be taken not to progress an application at any stage, applicants should not make further efforts or incur costs in progressing their interest until invited to do so by the BBB. Applicants should not advertise externally their intention to become an RLS lender, nor should they offer RLS facilities or commence lending via RLS until they have been notified that they have been accredited as an RLS lender.
Applicants will be advised of any decision not to progress an application via email by the BBB. In the event that their circumstances change an applicant may make a fresh approach to the BBB providing the applicant believes it can satisfy the requirements in the Request for Proposals published at the time of application.
BBB can make decisions flexibly according to the individual circumstances at the time, treat lenders and applicants differently in similar circumstances, and change the priority in which applications are dealt with and / or the deemed satisfaction (or not) of application criteria. BBB’s decisions about the scheme and about accreditation to the scheme are final and binding.
3.2 Detailed Guidance
3.2.1 Stage 1: Expression of Interest
Applicants should complete and submit a pdf version of the Expression of Interest form appended to this document via email to RLSAccreditation@british-business-bank.co.uk.
The Expression of Interest form should be used to outline the key elements of the lender’s application and how the lender meets the minimum requirements detailed in Section 4 of this document. An Expression of Interest must be made before a Formal Proposal can be submitted.
Applicants are encouraged to have a preliminary discussion with BBB (contact via RLSAccreditation@british-business-bank.co.uk) in order to help them ascertain whether participation in RLS would be appropriate, before committing effort to preparing an Expression of Interest.
Following receipt of an Expression of Interest, BBB may contact applicants to discuss the information within their Expression of Interest and to seek any clarifications deemed necessary. Applicants may be requested to submit supplementary information.
BBB will take a risk and judgment-based approach on deciding whether the applicant will be invited to progress to Stage 2, on the basis of both the written information submitted and any discussions held and will inform the applicant of the outcome of Stage 1 via email.
3.2.2 Stage 2: Formal Proposal
BBB will ask those applicants who it has invited to progress to Stage 2 to complete a Formal Proposal form which will seek further detail on the applicant’s organisation, strategy and processes and its proposed use of RLS.
BBB may invite applicant representatives to discuss the applicant’s existing and proposed future operations relevant to RLS. The BBB may ask applicants for additional information at this or any other point in the process.
On the basis of the information received to that point (including from the Formal Proposal, supporting documentation and any checks or additional information submitted), BBB will decide whether to invite the applicant to continue to the next step in the process.
3.2.3 Stage 3: Review and Approval
BBB’s due diligence will focus on formally assessing the applicant’s business, its lending strategy for existing and proposed RLS lending, historical and expected credit performance, approach to ESG issues and net zero transition, processes and controls over fraud and financial crime, financial status, corporate group structure, lending structure, governance, risk management and compliance frameworks, ownership structure, sources and cost of funding and availability of capital, and track record of lending.
BBB will specifically review the proposed pricing for RLS facilities to ensure that the full net economic benefit of the guarantee has been taken into account through lower pricing to the borrower than it may otherwise have had without the benefit of the guarantee. Lending structures will also be reviewed to ensure that the principles of the RL Scheme are adhered to in particular risk retention and alignment of interests and that the overall proposal provides value for money.
Any information provided by an applicant will need to be satisfactorily validated by the BBB by the end of this stage. If the due diligence result is satisfactory to BBB, a recommendation will be submitted to the appropriate BBB’s governance forum for a decision on whether to ‘approve in principle’ subject to fulfilling a number of further conditions. The BBB will communicate an ‘in principle’ intention to enter into an agreement subject to satisfaction of any conditions precedent and completion of legal documentation.
3.2.4 Stage 4: Completion and Accreditation
Before being able to commence lending via the scheme, a lender will be required to complete a number of preparatory steps. Firstly, the RLS guarantee agreement, and other related documents, must be signed by the lender. The RLS guarantee agreement is a standard agreement, which all lenders are required to enter into without amendment. BBB will provide the lender with access to a training guarantees portal, as well as general training and communications materials on how the scheme works, which the lender may choose to use to train its staff on scheme terms. The lender is however responsible for ensuring that all relevant staff within its organisation and any third party intermediaries such as credit brokers, are fully trained on how the scheme works and that all internal processes reflect the necessary RLS process requirements.
For the avoidance of doubt any accreditation decision will be subject to, among other things, completion of satisfactory due diligence, approval from the appropriate BBB’s governance forum and the prompt and satisfactory agreement of legal terms.
3.3 Assessment of Expressions of Interest and Formal Proposals
- BBB will make reasonable endeavours to respond promptly to applicants at each stage of the application process, subject to its rights to prioritise applications as set out above.
- BBB may request additional information to clarify issues or to supplement information provided by the applicant at any stage.
- BBB reserves the right to reject expressions of interest and proposals at any stage of the application process. BBB may decline applicants if it deems that the time it would take to progress the application through to completion, given the amount of work involved, is not considered value for money by the BBB compared to the amount of lending it would generate, for example if a lender has a complex lending structure.
Existing BBB delivery partners and PRA regulated banks or building societies may have a streamlined accreditation process which will truncate, or exempt the applicant from one or more of, the steps set out in paragraph 3.2 (Detailed Guidance) above. If an applicant has applied for another BBB scheme and due diligence has been undertaken on the applicant in connection with that scheme, this may also exempt the applicant from one or more of the stages described above. Applicants should state whether they fall into one of these categories on initial enquiry to find out the process applicable to them.
3.5 Delivery of Expressions of Interest and Formal Proposals
- Expressions of Interest and Formal Proposals should be submitted by email, as a pdf, to RLSAccreditation@british-business-bank.co.uk.
- A response will be issued to all applicants via email.
- Any accompanying spreadsheets should be in Microsoft Excel, ensuring that no formulas have been hidden or removed. Documents should be password protected, with the password provided separately.
- By sending in an Expression of Interest, applicants confirm they have read this document, including the Legal Notice.
This section details the minimum requirements for accreditation as a RLS lender. Applicants must be able to address all points to the full and absolute satisfaction of BBB in order to progress through the RLS accreditation process, and applicants are requested to explain how they will meet these requirements in the Expression of Interest form. If a minimum requirement is unclear to the applicant, or the applicant does not have or is unable to disclose the information, this should be raised with the BBB at the earliest opportunity.
For the avoidance of doubt, satisfying minimum requirements does not guarantee that an accreditation application will be successful, and BBB reserves the right to consider (and seek) additional relevant information at its discretion and ultimately reserves the right to reject expressions of interest and proposals at any stage of the application process.
4.1 Lending to Businesses trading in the UK
Lenders should be able to demonstrate a strong track record (minimum of 3 years) in the provision of finance, for those instruments for which it seeks accreditation (term loans, invoice finance facilities, asset finance facilities and overdrafts/revolving credit facilities (committed and uncommitted)). A lender should have deployed in excess of 100 facilities to UK businesses to date and currently be lending in excess of £10m p.a. Development and bridging finance applicants must have a portfolio of at least £20m.
Where the applicant is a Responsible Finance Provider, Regional Funds or Social Enterprise Lender not able to demonstrate the minimum value of lending, a lower minimum value may be considered.
Where the applicant’s proposed finance product cannot be used with the relevant RLS variants without amendment to the standard guarantee agreement, it is not considered value for money to proceed with the application.
4.2 Critical Mass
BBB expects applicants to use RLS to support a minimum of £1,000,000 of new lending during the Scheme Period. Applicants must be able to demonstrate value for money through lending simplicity and the number of SMEs that will benefit (a minimum number of 20 SMEs is required).
Applicants must be able to demonstrate through evidence-based forecasts the extent to which they intend to use the scheme. The requested allocation must be supported by applicant’s operational capacity and historic rate of lending.
In exceptional circumstances, for example, when the applicant is providing lending to SMEs in regions outside of London & the South East or where the applicant is a Responsible Finance Provider or a Social Enterprise Lender, lower requirements for minimum volumes during the Scheme Period may be considered.
4.3 Interest and fees
Each applicant must be able to demonstrate that the lender levied fees and interest that they propose to charge borrowers for facilities offered under RLS are reasonable and based on a lender’s normal pricing framework. Lenders must demonstrate that their pricing for RLS borrowers will pass through the full economic benefit provided by the RLS guarantee. Each lender must provide the BBB with a completed pricing table at the Formal Proposal stage, setting out the lender levied fees and interest which they will typically charge for RLS facilities and demonstrate how the government guarantee is reflected in that pricing through lower pricing than it may otherwise have charged.
All other fees should include for example but is not limited to: arrangement/upfront fees; facility and administration fees; non-utilisation fees; early settlement/exit fees; unauthorised/default fees; lender legal, monitoring or valuation fees, broker fees and any other third party fees which are invoiced to the Lender and paid by the borrower.
4.4 Availability of Capital
Each applicant must be able to demonstrate that they have sufficient committed capital available to meet their business lending forecasts both with and without RLS support, at an appropriate cost of funds for the duration of the Scheme Period. The cost of funds should be reasonable and in line with market pricing for a structure with equivalent risk to the sources of capital, across all tranches. Capital in use by the lender in relation to its business and the origination of RLS facilities must be derived from sources which could not reasonably be expected to bring the scheme or the Guarantor into disrepute (including, without limitation, by not breaching any applicable law and regulation).
Where the availability of or freedom to deploy that capital is subject to conditions which may affect its ability to be used for RLS-backed lending then this must be indicated at Stage 1 (Expression of Interest) (this is likely to be especially relevant to those applicants making use of capital originating from public sources, including EU programmes, and subject to continuing conditions). In such cases the applicant should verify the position with the provider(s) of the funding concerned.
Where use of capital from public sources is involved, a maximum of 70% of the total proposed lending amount may come from sources under Government control and the balance (minimum 30%) must be sourced from institutional investors from within the private sector. The private sector can include the European Investment Bank and European Investment Fund. ‘Under Government control’ is defined as capital sourced from UK central government, Devolved Administrations, Local Authorities, ERDF, ERDF legacy and other public sector legacy.
Funding from retail and/or investors who are natural persons is not permitted.
Given the fundamental principle of RLS – the risk sharing partnership between the UK Government and the delivery partner, each applicant is required to demonstrate its alignment of risk through a proportional share in the credit outcomes of RLS facilities. Specifically, this is expected to take the form of ‘skin in the game’, whereby the applicant places its own capital at risk through RLS lending. The amount of capital at risk should be meaningful to the applicant and to a level acceptable to BBB.
Individual RLS facilities, and/or the benefit of the RLS guarantee cannot be assigned (either by legal or equitable transfer or by way of security or declaration of trust or otherwise) to third party funders without BBB consent, which may not be provided. Applicants should make their funders aware of this restriction as it may impact the availability of capital. In certain circumstances in connection with funding the origination of new scheme facilities, BBB may consent to the scheme guarantee and scheme facilities being assigned or a trust being declared over the scheme guarantee and scheme facilities (subject to certain conditions).
4.5 Financial Status, Operations, Management Team and Track Record
Applicants must demonstrate a viable business model with and without RLS lending, financial stability (applicants who are insolvent will not be considered suitable), and robust and established operations and systems. An applicant must have sufficient own funds to absorb business risks arising through reasonably foreseeable circumstances. This includes, amongst other risks, operational risk taking into account market related disruptions, and credit risk on the applicant’s exposure to both its existing loan portfolio as well as prospective RLS and commercial lending. It must be able to demonstrate it has sufficient skills, experience and resources to enable it to deliver the proposed RLS lending and have the operational capability to handle stress from an economic downturn whether caused as a result of market disruptions or otherwise. BBB will wish to see adequate cash resources and a clear strategy of how a RLS portfolio could be safeguarded in the event of the applicant ceasing trading, for example, via the establishment of an arrangement with a reputable back-up service provider to service the portfolio in the event the lender fails.
Applicants must demonstrate that robust and established systems and processes are in place for making and managing the proposed RLS supported lending facilities. This requirement includes but is not limited to origination processes, risk management and underwriting capabilities and processes, lending documentation, back-office systems, monitoring and compliance, governance arrangements, management information reporting and adequacy of preventative and detective financial crime and fraud controls and associated reporting processes. Applicants must also be able to demonstrate that they have a competent team with sufficient expertise in the type of product and business area to be able to execute the proposed strategy for RLS-backed lending. The number of individuals engaged with conducting lending activities must be in line with other organisations of a similar scale and sufficient to mitigate reasonably foreseeable operational risks. Notwithstanding this, the number of full time equivalent individuals engaged with lending activities should be at least 10. For development finance lenders, we expect at least 15 FTE’s to be directly employed in lending.
If the applicant is an existing BBB delivery partner or has applied or is in the process of applying to BBB for one of its programmes, the delivery partner must have conducted itself in an open and transparent way throughout the application process. If the applicant is an existing delivery partner of the BBB, its conduct in relation to the programmes it participates in (including whether it has complied with an audit or other remedial actions or whether BBB has had cause to reduce the lending limit) will be taken into account when determining suitability for the RL Scheme.
Applicants must have appropriate standards of reputation and integrity, including appropriate ethical standards in all areas of its proposed operations and appropriate processes in place to maintain these. An applicant participating in the scheme must meet all relevant legal and regulatory requirements from inter alia a credit, conduct, financial crime and fraud perspective. The applicant must be able to demonstrate this as part of their proposal.
The lender commits to participating in the UK’s transition to a net zero economy and incorporating ESG considerations into its future activities, including a continuous process of aligning operations, controls and disclosures.
4.6 Regulation and Tax Domicile
Applicants are expected to be appropriately regulated, licensed and have the necessary authorisations and permission in the UK to conduct activities consistent with their lending strategy.
Applicants must be incorporated in the UK or if an overseas resident finance provider, have a UK registered branch.
Applicants (including other entities in their corporate structure) must be able to demonstrate transparent and appropriate tax structures, in particular, the proposal must be consistent with the requirements of British Business Bank plc’s group-wide tax policy, a copy of which can be found on the British Business Bank website at: https://british-business-bank.co.uk/transparency/. Applicants should also demonstrate appropriate ethical standards in relation to their proposed lending activity, operations and general business activities.”
4.7 Legal Structure
All applicants, if successful, will be required to enter into a “standard form” guarantee agreement with the UK Government which all lenders are required to enter into without amendment. The guarantee agreement reflects the fundamental principle of RLS – the risk sharing partnership between the UK Government and the delivery partner which requires the delivery partner to have a financial interest in the performance of the portfolio through the investment of its own funds and commitment to the guarantee undertakings.
The guarantee agreement fits business models where the origination and servicing of the RLS-backed lending is undertaken by the same legal entity as the named lender (the “lender of record”) which contracts with the underlying borrower. If a lender has a business model, corporate structure and/or funding structure that does not fit the RLS standard guarantee agreement (including for example where an applicant intends to declare a trust over or assign (by way of security or otherwise) the scheme facilities and/or the guarantee whilst retaining ‘skin in the game’, or where the applicant is not the lender of record, or the servicing of the portfolio will be undertaken by an entity other than the originator) the application will be considered using a risk and judgement-based approach taking into account, amongst other things; the financial stability and sustainability of the business, availability of capital, sources of funding, whether the business model and risk sharing arrangements are consistent with the scheme, whether the lending structure falls within BBB’s risk appetite and whether the projected deployment over the scheme term justifies the additional work involved to progress the application.
Applicants should be aware that any costs incurred by BBB in assessing an applicant’s business model, and/or supplementing the standard guarantee agreement to accommodate business models not contemplated above will be for the account of the applicant. An estimate of such costs will be notified to the applicant in advance.
The core terms of the agreement include (amongst other things) the following:
- the guarantee is given to the relevant lender in relation to the RLS backed loans or facilities originated under the guarantee agreement;
- the lender originates the RLS backed lending and is the primary entity responsible for servicing the RLS backed lending;
- the lender acts in accordance with its standard policies when originating and administering the RLS-backed loans and with regard to the standard of care set out in the guarantee agreement;
- the lender is responsible for the administration of the guarantees portal and making sure it is up-to-date;
- the lender maintains adequate and up-to-date records in relation to the scheme facilities;
- the lender pays the Scheme Lender Fee to the Guarantor.
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, i.e. it’s not the lender of record, it will not be considered a suitable delivery partner for RLS for its own account. 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.
BBB reserves the right to require a recourse party within the structure, whom payment can be demanded from after 60 days non-payment by the lender.
All applicants invited to the next stage will be required to complete a Funding Structure Questionnaire to outline the legal structure, including a group structure diagram together with details of shareholders/ownership and with sources of funding clearly indicated.
4.8 Fraud & Financial Crime Risk Management
A lender must:
- satisfy itself as to the identity of the borrower and conduct its usual know your customer (“KYC”), anti-money laundering (“AML”), and anti-fraud and financial crime checks in line with the standard of care in the guarantee agreement and in accordance with any fraud and financial crime assessments required in the Eligibility Criteria
- have documented policies and procedures in place to prevent, detect, investigate, report and evaluate fraud & financial crime that are consistent with those of a prudent lender
- have a documented recoveries model in place to recover funds once fraud or financial crime is detected
- remain in full compliance with all applicable fraud & financial crime laws, regulations and standards in all of the jurisdictions in which it operates and holds accounts
- complete a fraud & financial crime risk assessment to identify the inherent and residual fraud & financial crime risks of the scheme and how effective their processes & controls are in mitigating these risks
- use fraud & financial crime screening software against all new loan applications and utilise any relevant internal or external business intelligence to make an appropriate assessment of the borrower throughout the loan lifecycle
- consider its membership of fraud & financial crime prevention and detection bureaus. Unless it can demonstrate that it is not relevant or appropriate for the size and/or nature of its organisation, it must be a member of such a bureau, or in the process of becoming one
- commit to reporting detected fraud & financial crime or suspicious activity to the relevant body, including fraud & financial crime prevention and detection bureaus as appropriate
- respond to any fraud & financial crime findings from the BBB’s External Lender Audit & Assurance programme in a timely, accurate and responsive manner.
To help support a lender’s fraud detection and investigative work, BBB will occasionally share with lenders high fraud risk flags with the expectation that lenders will review the data and utilise it to assist their investigation work where appropriate.
5. Legal Notice
Applicants who submit the Expression of Interest or Formal Proposal form are deemed to acknowledge and accept its terms and conditions including this Section.
British Business Bank plc (referred to as “BBB” in other sections) and its subsidiaries, including British Business Financial Services Ltd, (referred to as the “BBB Group” in other sections) reserves the right at any time not to continue with the current process and/or cancel or withdraw from the process at any stage and any costs or expenses incurred by respondents will not be reimbursed. British Business Bank plc and its subsidiaries exclude their liability for any costs, expenses or losses incurred by respondents to the full extent permitted by law.
British Business Financial Services Ltd (“BBFSL”) is a wholly owned subsidiary of BBB. This Request for Proposals is being funded and delivered by the Secretary of State acting through its agent, BBFSL. BBFSL carries out administrative and operational assistance to the Department of Business and Trade and, for the avoidance of doubt, does not provide any investment services or perform any investment activities on a professional basis. BBFSL is subject to direction of the Secretary of State as Guarantor and BBB Group reserve the right to consult with the Department of Business and Trade, and other government departments as required with respect to any application for accreditation.
BBB, the Department of Business and Trade and BBFSL reserve the right to reject any proposals at any time.
BBB Group reserves the right to amend any timetable and/or other aspects of the current process at its discretion.
BBB Group may request clarification of information and additional information at any point of the process regarding a response and/or may also request face to face meetings. Refusal to provide such clarification, information or meetings may cause a submitted response to be rejected. Where no reply to a request for information or for clarification is received within ten business days, BBB Group may assume that the submission has been withdrawn.
Information provided by the BBB Group and any discussions relating to the RLS (together the “Confidential Information”) shall be treated by you as confidential and shall not be distributed or disclosed in whole or in part to any other party, nor may it be quoted or made public in any way without the British Business Bank’s prior written consent. Notwithstanding the foregoing, you may disclose Confidential Information to your officers and employees and your professional advisers and auditors who need to know the Confidential Information in connection with your application to participate in RLS but in each case, only on the basis that you ensure that the recipient treats such information as strictly confidential and you shall be responsible to the British Business Bank for any breach of confidentiality by the recipient.
BBB will assess applications using a risk and judgement-based approach. For the avoidance of doubt, satisfaction of minimum requirements does not guarantee accreditation and BBB reserves the right, at its sole discretion, to decline to accredit any applicant at any stage should it consider accreditation to be inappropriate for any reason at any time. By way of illustration, such reasons may include (but shall not be limited to): the desirability of building an optimal panel of accredited RLS lenders, weaknesses in quality of proposals, reputational concerns around the sources of funding, business models which do not fit within the principles of RLS and the terms of the guarantee agreement; for example where there is a lack of alignment between the lender of record and the originator and/or servicer of the loans and/or should total applications exceed the amount of funding Government provides for RLS. BBB further reserves the right, at its sole discretion, to decline to admit an existing BBB delivery partner or PRA regulated bank or building society applicant for the streamlined accreditation process should it consider that this route is inappropriate for any reason at any time.
Respondents should note that information received by the BBB Group as part of the application process, including personal information (if any), may be published or disclosed in accordance with the access to information regimes. These are primarily the Freedom of Information Act 2000, the Environmental Information Regulations 2004, the European Commission’s Transparency Award Module and data protection regulations and legislation, including but not limited to the Data Protection Act 2018 and the European Union’s General Data Protection Regulation ((EU) 2016/679). In view of this, should respondents consider that any information should be treated as confidential and/or commercially sensitive, it would be helpful if respondents could set out why they consider this to be the case in each instance. Automatic confidentiality disclaimers generated by IT systems will not, in themselves, be regarded as binding.
If the BBB Group receives a request for disclosure of information provided, full account will be taken of any explanation, but no assurance can be given that confidentiality will be maintained in all circumstances. Decisions on disclosure remain the responsibility of British Business Bank plc and its subsidiaries and ultimately the Information Commissioner and courts.
Personal data will be processed in accordance with the privacy notice on our website https://www.british-business-bank.co.uk/privacy-notice/
This Request for Proposals is not intended to constitute a financial promotion and is not being distributed by, nor has it been approved for the purposes of section 21 of FSMA by, a person authorised under FSMA. No part of this document should be published, reproduced, distributed or otherwise made available in whole or in part in any jurisdiction where to do so would be unlawful.
British Business Bank plc is a public limited company registered in England and Wales registration number 08616013, registered office at Steel City House, West Street, Sheffield S1 2GQ. As the holding company of the group operating under the trading name of British Business Bank, it is a development bank wholly owned by HM Government which is not authorised or regulated by the Prudential Regulation Authority (PRA) or the Financial Conduct Authority (FCA). British Business Bank operates under its own trading name through a number of subsidiaries.
BBFSL is a wholly owned subsidiary of British Business Bank plc, registered in England and Wales registration number 09174621, registered office at Steel City House, West Street, Sheffield S1 2GQ. It is not authorised or regulated by the PRA or FCA. British Business Bank plc and its subsidiary entities are not banking institutions and do not operate as such.
A complete legal structure chart for British Business Bank plc and its subsidiaries can be found at british-business-bank.co.uk/about-us/who-we-are/corporate-information.
Any enquiries concerning this document may be addressed by email to RLSAccreditation@british-business-bank.co.uk.
- 1. The Northern Ireland Protocol has now been amended by the Windsor Framework, a legal agreement which changes how the Northern Ireland Protocol operates. References to the “Northern Ireland Protocol” throughout these pages should be understood accordingly. For more details on this, please see https://www.gov.uk/government/publications/the-windsor-framework.
- 2. Charities and Further Education colleges are exempt from complying with the 50% turnover from trading activity criterion for facilities offered after 9 March 2023
- 3. Some types of entities/activities/sectors are excluded – these include, but is not limited to, the state funded primary or secondary schools, entities providing insurance (other than insurance brokers), deposit taking banks and others and, certain export related activities, as more fully set out in the guarantee agreement which the lender will sign as part of the accreditation process.
- 4. Which includes, but is not limited to, an advertisement campaign outside the UK, the manufacture of a product which is only available to customers in a market outside the UK and the fulfilment of an export order.
- 5. This is the principal amount outstanding for asset finance and term loans, the facility limit for overdrafts and the facility limit for invoice finance facilities.