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The Growth Guarantee Scheme to replace the Recovery Loan Scheme

31st May 2024
Brought to you by
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Allica is a bank built especially for established businesses with between 5 and 250 employees...
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David Holdstock
Allica Bank
David Holdstock, Allica Bank’s Government Lending Scheme Manager, explains the newly evolved Growth Guarantee Scheme, its relationship with the Recovery Loan Scheme and what it means for smaller businesses across the UK.
 

For the UK’s smaller business community, there were a few standout announcements in the Government’s Spring 2024 budget: 

●  Full expensing extended to leased assets

●  Cuts to employee National Insurance Contributions

●  The launch of the Growth Guarantee Scheme (GGS), to succeed the Recovery Loan Scheme (RLS).

It is that last point that, in my opinion, warrants more attention. The Recovery Loan Scheme is a valuable government-backed lending scheme designed to increase access to funding for trading UK businesses. It is operated by the British Business Bank, who have decided it is time for a name change and general spring clean, so will be replacing it with the Growth Guarantee Scheme once the Recovery Loan Scheme ends at the end of June 2024.

I’ve written this article to explain what we know so far about the incoming Growth Guarantee Scheme, as well as how the scheme may be able to help your clients access finance, and thus growth opportunities, that might otherwise be beyond them.

A facelift or a fundamental shift?

The main change to report is the most obvious one: the new name. Despite its promise and many successes, I think the Recovery Loan Scheme could have had even more impact were it not for a title some found misleading.

“But my company isn’t in recovery,” is a phrase we heard all too often from healthy businesses that could have benefitted. The fact is, it wasn’t the business that the scheme was supposed to help recover, but the UK economy. Thankfully, the British Business Bank has responded well to this feedback, branding the new version of the scheme the much more inspiring Growth Guarantee Scheme (or GGS).

So, beyond its new name, what else is changing? In the British Business Bank’s own words, “the terms of the scheme are intended to remain broadly unchanged from the Recovery Loan Scheme.”

With the Growth Guarantee Scheme, the mechanisms and structure of the Recovery Loan Scheme will be repurposed to “support access to finance for UK smaller businesses as they look to invest and grow.”

The terms of the Growth Guarantee Scheme

The crux of the Growth Guarantee Scheme is in the government guarantee of 70% of the loan value to the lender. This assurance gives lenders more confidence to lend beyond their usual risk appetite and, thus, unlock funds for businesses that might not have received them otherwise. These funds can be a kickstart to growth plans and open new opportunities, boosting the British economy at a time when it’s much needed.

At the time of writing, the British Business Bank has yet to publish the specific terms of the scheme, but those lenders who have signed up to the Recovery Loan Scheme can likely be considered fairly instructive of what to expect. As such, the terms that follow relate to the RLS (unless stated otherwise). We expect the terms for GGS lending to be similar, if not the same, in many ways:

●  Businesses can borrow up to £2m (£1m for Northern Ireland Protocol businesses)

●  Eligible ‘smaller’ businesses are those with an annual turnover below £45m.

●  Borrowers must be trading in the UK and generating more than 50% of income from trading activity

●  It’s not available to businesses in difficulty, including those undergoing insolvency proceedings

●  Borrowers must not apply for an amount that would see the business exceed any subsidy limits

●  The Government guarantees 70% of the value of the loan to the lender. The borrower remains 100% liable

●  It’s available from 1 July 2024 and will run until 31 March 2026 (this is specific to GGS and has been confirmed by the British Business Bank).

It’s worth continuing your own research, as the British Business Bank may have released more specific details about the Growth Guarantee Scheme after this article was published. Please don’t take the terms above as definitive.

How the scheme has helped businesses already

Funds provided under the Growth Guarantee Scheme can be used for any number of purposes. GGS loans can be used for everything from mergers and acquisitions to invoice finance. It’s to each lender’s discretion.

Through RLS lending, for example, we at Allica Bank were able to provide funding to:

●  Scaffolders who had won a large contract for which they needed new equipment to fulfil

●  Businesses seeking a five-year, interest-only mortgage that wouldn’t have been available otherwise

●  A company undertaking a large-scale photovoltaic panel purchase and installation project to make its headquarters more sustainable.

Whether it’s sustainability or scaling up, GGS may enable lenders to support smaller businesses with a whole range of initiatives. If you have clients with big ambitions or exciting opportunities in front of them that they’ve struggled to find a lender for, GGS might be able to help.

It’s all about growth

The next time one of your clients shares their future plans with you and might have concerns about how they can fund them, do keep GGS in mind. Accredited lenders may be able to turn to the Growth Guarantee Scheme where a prospective borrower would otherwise sit a little outside their normal risk appetite.

If you have a client that is ready to take a big step but needs the capital to do so, GGS is well worth investigating. With many business owners being unlikely to know the full details of the scheme themselves, they’ll no doubt be very grateful for you doing so!

This article is based purely on what is currently publicly available information. Actual details of the scheme may differ. Please look out for further announcements from the British Business Bank.