What’s Beyond RLS - The Growth Guarantee Scheme
Greg Taylor · Posted on: July 2nd 2024 · read
SMEs are the backbone of the UK Economy, making up 99.9% of businesses and supporting 27 million jobs, accounting for £4.5 trillion of annual turnover.
However, since COVID, these vital enterprises seem to have been largely forgotten by our politicians. In early 2024, in a bid to boost small firms across the UK the Government announced several measures which included:
A ‘one-stop shop’ of support and advice for small firms.
The Council builds on the Department’s existing support for SMEs and will provide a bespoke forum for small businesses to have their voices represented within Government.
Now called the Growth Guarantee Scheme, launching on 1 July 2024, to support UK businesses with lending of up to £2 million.
Banking & Finance
Read more about Banking & FinanceRead moreThe Growth Guarantee Scheme
The Recovery Loan Scheme (RLS) was originally set up to support the UK’s SMEs during the early post pandemic period with government-backed lending, it was the successor to CBILS (The Coronavirus Business Interruption Loan Scheme) which was introduced at the height of the pandemic to provide financial support for businesses. Now, we have the third iteration of the scheme, and it has a new name – the GGS – but the terms remain broadly unchanged!
The GGS aims to improve the loan terms available to UK businesses, however, those terms reflect the protection provided by a 70% government guarantee offers to lenders, often resulting in higher interest rates. Essentially, the government underwrites 70% of what the lender could lose if a business defaults. Businesses are still liable for 100% of the borrowing.
Businesses can apply for lending under GGS directly through a number of accredited lenders which can be found on the British Business Bank (BBB) website, or with the help of a trust advisor like the Banking & Finance Team at MHA .
Please note that this scheme exists to support businesses who might not meet a lender’s usual lending criteria. Some businesses might find commercial loans with better terms; interestingly, if a lender can offer finance on normal commercial terms without the need to make use of the scheme, it is expected do so.
The GGS aims to improve the loan terms available to UK businesses, however, those terms reflect the protection provided by a 70% government guarantee offers to lenders, often resulting in higher interest rates.
Here is an overview of the key facts you need to know about GGS:
- GGS covers lending across the board in the form of term loans, overdrafts, asset finance, and invoice finance.
- You can borrow for six years on term loans and asset finance facilities (minimum three months) and three years for overdrafts and invoice finance facilities (minimum three months).
- The maximum you can borrow is £2 million, as it was for the Recovery Loan scheme, for businesses in Great Britain and breaks down as follows - Loans or overdrafts between £25,001 to £2 millon and on invoice finance or asset finance it’s between £1,000 and £2 millon.
What businesses can apply for GGS?
The following types of business can apply for GGS:
- Sole traders
- Limited partnerships
- Limited liability partnerships
- Corporations
- Co-operatives and community benefit societies
- Other any other legal entities carrying out business activity in the UK, with business activity operating through a business account.
Businesses must meet certain criteria in order to access the scheme. A business must:
- Have a turnover of less than £45 million.
- Been carrying out trading activity in the UK for a minimum of two years.
- Be generating more than 50% of its turnover from trading activity (i.e., the sale of goods or services) in the UK, unless they are applying as a registered charity or further education establishment.
- Be considered ‘viable’ (i.e., the lender must consider that the borrower has a viable business proposition)
- Not be in collective insolvency proceedings or any other business difficulty.
- Intend to use the loan for a business purpose.
It is also worth know that lenders are required to undertake credit and fraud checks for all applicants to the GGS, though the checks will vary according to the which lender is used.
A lender(s) may take personal guarantees, in line with their normal commercial lending practices, but Principal Private Residences cannot be taken as security within the scheme.
It is also worth know that lenders are required to undertake credit and fraud checks for all applicants to the GGS, though the checks will vary according to the which lender is used.
How will interest rates work for this scheme?
Interest rates will vary based on the lender and each individual businesses circumstances, as with any commercial lending. The scheme however does cap the annual effective rate of interest and upfront and other fees so they cannot be more than 14.99%, according to the BBB.
Businesses who wish to apply for funding from the GGS can do so for any legitimate business purpose, for example:
- Cash flow
- The of buying equipment
- For meeting a one-off cost
- Helping with payroll
- Growth Funding – marketing costs etc.
A business can also apply for funding under the GGS if they previously borrowed under BBLS, CBILS or CLBILS.
When is the GGS scheme scheduled to start?
The Growth Guarantee Scheme starts on July 1st 2024, and the scheme will end on March 31st, 2026.
According, the BBB the Recovery Loan Scheme (in its various guises), has supported UK smaller businesses with £5.3bn of finance. It was designed to support access to finance – and growth – for UK businesses as they recovered from the Covid-19 pandemic.
The BBB interestingly also says that approximately 80% of facilities under the third iteration of the RLS Scheme have been offered outside of London, and more than 90% of the businesses supported had fewer than 50 employees.
If you would like more information, please contact the Banking & Finance Team at MHA via the button below.
Access to finance; changes needed to help SMEs
The scheme however does cap the annual effective rate of interest and upfront and other fees so they cannot be more than 14.99%, according to the BBB.
