Is your business thinking about borrowing to invest in the months ahead? If so, a new state-backed scheme might enable you to arrange finance on more attractive terms than a conventional debt facility. The Growth Guarantee Scheme (GGS) is the latest in a series of government-backed loan programmes aimed at businesses seeking to recover from the effects of the pandemic. The scheme, which opened on 1 July and is likely to run until March 2026, is expected to support around 11,000 businesses, primarily smaller enterprises, with ambitions to expand.
In practice, the GGS operates on similar principles to previous schemes of this type. The financing comes from private sector providers – around 40 banks, building societies and other lenders have agreed to take part – but the government stands behind the loans. If a business defaults, the Treasury will cover up to 70% of the value of the advance to cushion the lender from losses. This guarantee should enable lenders to finance more businesses and to do so at more competitive interest rates. Lenders themselves will decide what rates they are prepared to charge, but the British Business Bank, in charge of administering the scheme, insists pricing will reflect the benefit of the state guarantee.
Importantly, different types of loans will be available through the scheme, including overdrafts, term loans and asset and invoice-finance products. Businesses will be able to borrow over terms ranging from three months to six years, depending on the type of finance they choose. The scheme is also flexible about loan size. In theory, firms can borrow up to £2 million, but many will seek much smaller facilities. The scheme allows for advances worth as little as £2,000. The GGS is open to businesses with an annual turnover of up to £45 million, covering a broad range of small and medium-sized enterprises. Lenders are allowed to ask business owners and directors to personally guarantee the debts their companies take on – but are banned from requiring people to put their homes up as collateral.
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It is also important to recognise that the GGS is aimed at businesses looking to invest to drive growth, rather than those that are currently struggling. The scheme’s small print rules out loans to businesses in financial difficulties, including those going through insolvency proceedings. That said, businesses that are still repaying loans from other schemes linked to the pandemic – including the Coronavirus Business Interruption Loan Scheme, the Bounce Back Loan Scheme and the Recovery Loan Scheme – are not banned from taking part in the GGS. They may be eligible for smaller loans, but lending decisions will be at the discretion of the finance provider.
The bottom line is that, for any small business considering taking on debt in the months ahead, the GGS is worth considering. Many small businesses have been reluctant to borrow over the past year or so, with bank lending decreasing. But with the economic outlook now brightening, demand for finance is expected to increase. The GGS won’t necessarily be the cheapest – or best – option for your business. But where lenders are in a position to offer you a better deal on a standard product, they must give you this option. In that sense, there is nothing to lose by checking what the GGS might provide.
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