What is the Growth Guarantee Scheme?

The Growth Guarantee Scheme is the successor to the Recovery Loan Scheme and is available from 1 July 2024 and will initially run up until 31 March 2026 – It’s managed by the British Business Bank (BBB) through a network of accredited partners.

The BBB doesn’t lend money itself, but it does support the funders to help them do more for businesses.

The Growth Guarantee Scheme can generally support facility sizes of up to £2m and provides the lender with a 70% government-backed guarantee with a wide range of products supported by different lenders, including term loans, overdrafts, asset finance, invoice finance and asset-based lending.

 

Why has it been introduced?

Basically, the government has had a scheme to underpin lending for quite a while, before GGS there was RLS, before RLS was CBILS, and before CBILS was EFG – There’s always been a Government support of some kind but it has changed over the years.

The RLS was introduced in April 2021 to help UK businesses to recover from the impact of the pandemic and to replace CBILS. In the 2024 Spring Budget, Chancellor Jeremy Hunt said that he would provide £200m of funding to extend the scheme with the aim to help over 11,000 businesses grow during the life of the scheme – It’s helped over 1.6m businesses to date.

 

How is the Growth Guarantee Scheme different from the Recovery Loan Scheme?

The criteria isn’t really any different to the RLS scheme, the listed criteria all appear to be exactly the same however, we will update this if there are any changes:

 

Key features of the scheme at British Business Bank level.

• Up to £2 million per business group – This is generally considered to be against the size of the guarantee as opposed to the size of the ultimate facility.
• Wide Product Range – Including term loans, overdrafts, revolving credit facilities, asset finance and invoice finance facilities.
• Terms from 3 months to 6 years – Funder and product dependent
• Access to multiple schemes – You can have funding across all schemes and not restricted because you took funding in previous rounds.
• Pricing – Typically more expensive than standard lending as the funder has to pay money to the British Business Bank for their guarantee.
• Personal Guarantees – Personal guarantees can be taken at the lender’s discretion, in line with their normal commercial lending practices. Principal Private Residences cannot be taken as security within the Scheme
• Guarantee is to the lender – The scheme provides the lender with a 70% government-backed guarantee against the outstanding balance of the facility after it has completed its normal recovery process. The borrower always remains 100% liable for the debt.
• Decision-making delegated to the lender – Any Government backed facilities are provided at the discretion of the lender. Lenders are required to undertake their standard credit and fraud checks for all applicants and will seek the use RLS as a back-up as opposed to deviating away from their standard lending practices first and foremost.

 

How does that differ at funder level

Basically, the scheme looks one way from the British Business Banks point of view, however different funders sign up to slightly different sets of internal rules depending on risk appetite, product suite and their position in the market.

The funders opinion on risk should be unchanged by the presence of GGS – Just because there is the option of a Government Guarantee, it doesn’t make a bad deal a good deal; it’s meant to change a 50:50 deal to a doable deal.

Each funder will choose how they wish to use the funds to best suit their client base and goals, some may allocate a percentage of funds to re-finance and some may allow funds to be used for lower security funding projects like Green Energy.

 

The BBB sets certain eligibility criteria:

• Turnover Limit – The scheme is open to smaller businesses with a turnover of up to £45m or on a group basis if part of a group.
• UK-based – The borrower must be carrying out trading activity in the UK and, for most businesses, generating more than 50% of its income from their main trading activity.
• Viability test – The lender must consider that the borrower has a viable business proposition.
• Business in difficulty – The borrower must not be a business in difficulty, including not being in relevant insolvency proceedings – This is generally the businesses opinion of difficulty as opposed to the Government definition.
• Subsidy limits – All borrowers in receipt of a subsidy from a publicly funded programme should be provided with a written statement, confirming the level and type of aid received; checks are made to ensure your client is within the limits.

 

The biggest factor about getting the most out of the scheme is understanding how different funders utilise the scheme and how it can benefit your clients business. Two things to note:

• Firstly, funders are charged for using the scheme so “typically” they pass the rate on to the customer via an increased rate, it’s normally a nominal increase but it’s always best that clients understand that that is likely to happen.
• Secondly, it’s the funders discretion to not use GGS – If they think they can lend without GGS, they will lend without it. The funder has to justify their reasons to the BBB why they’ve said you need it. It’s important to have that distinction that applying for it doesn’t mean you will get it.

If you would like to learn more about the scheme, please do not hesitate to contact us.