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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
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.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
-
What will the unravelling of US-China trade mean for the economy?What will a US-China decoupling mean for the global economy?
-
Scottish Mortgage: why we’re turning to private companies and China for exceptional returnsWhen it comes to delivering growth, Scottish Mortgage will stop at no end in its hunt for exceptional long-term returns - this includes China, unicorn companies and sectors such as space exploration
-
Why did the government take over British Steel – and was it a good idea?The government has stepped in to take control, not ownership, of British Steel, citing national security and other factors. But does that make sense?
-
'Rachel Reeves' plan to force pension funds into UK assets won't work'Opinion Hustling pension fund cash into British assets sounds like a good idea. It would be better to make Britain an attractive place to invest, says Matthew Lynn
-
What caused the Birmingham bin strike – and what does it mean for British businesses?The Birmingham bin strike is the fallout from an equal-pay claim brought by female cleaners. That bodes ill for the rest of British business
-
How British businesses can tackle Trump's tariffsThe majority of British businesses are likely to take a hit from the chaos caused by Trump’s tariffs to reorder global trade. Companies in the firing line face some difficult decisions, says David Prosser
-
A new wealth tax is a terrible idea. The rich are already being hit by sneaky taxes – Merryn Somerset WebbOpinion Ideologues want to squeeze more tax out of the rich with a wealth tax. They’re already wrung dry, says Merryn Somerset Webb
-
Why are energy bills so expensive in the UK?Electricity bills in the UK are higher than in any comparable rich country. Some blame the net-zero zealotry of the government for that. What is really to blame for high energy bills?
-
Five years on: what did Covid cost us?We’re still counting the costs of the global coronavirus pandemic – and governments’ responses. What did we learn?
-
London can lure Brexit-fleeing banks back to UK – but the City must move quicklyOpinion Many banks fled to Paris in the wake of Brexit but are now in full-scale retreat. The City should move quickly to lure them back, says Matthew Lynn
