The Growth Guarantee Scheme (GGS) is run by the government’s British Business Bank. It is the successor to the Recovery Loan Scheme. It encourages lenders to finance small businesses, that lack security. The scheme underwrites loans to provide a guarantee to the lender in the absence of collateral.
The detail behind the GGS
Working with over 40 lenders, the government will guarantee over £2 billion of new bank lending to viable businesses;
- They will underwrite 70% by way of a government-backed guarantee against the outstanding balance of the facility after the lender has completed their normal recovery process i.e. the guarantee is to the lender
- Minimum facility sizes vary, starting at £1,000 for asset and invoice finance, and £25,001 for term loans and overdrafts
- Repayment periods are from 3 months to 10 years
- The contract is between you and your lender, the government is not a party
- You always remain 100% liable for the debt
- A personal guarantee may be taken, but no security over your main residence can be taken as security within the scheme.
GGS loans are a high risk for the banks as they could lose up to 30% of the loan value.
There is an expectation that company directors will have already utilised all of their personal assets as security before a GGS loan can be secured.
Once the lender has agreed to finance you, they will apply for the GGS on your behalf.
The cost to small businesses
- Lenders typically charge between 2.5% and 12.5% above the base rate, depending on the perceived risk involved
- An arrangement fee of 1%-2% is often charged in addition
- The government charges the lender for the provision of the guarantee
The charges are high because you pay a premium for the guarantee. But it could be your saviour, and still more cost-effective than releasing an equity stake in your business.
And if you fail to repay the loan in full, your business remains liable for the full debt. The government guarantee is for the lenders.
Who’s eligible?
Eligibility is devolved to the lender as part of their standard commercial lending criteria.
As a guidance, GGS is available to viable businesses that:
- Operate in the UK and generate more than 50% of your income from trading income
- Have a turnover not in excess of £45 million
- Are in a position to meet the repayments over the fixed period
- Require the finance for an eligible purpose, such as growth
- Operate in a business sector that is eligible for GGS
- You must not be a business in difficulty
- Assistance is regarded as a subsidy as it is deemed to benefit you, so can’t exceed subsidy limits
The main exclusions relate to businesses in the public-sector bodies, state-funded primary and secondary schools as well as banks, building societies, insurers and reinsurers.
Start-up businesses are not excluded from GGS loans but may find it more difficult to obtain one due to the perceived instability of the business and therefore pay a premium.
In making their lending decision, banks will scrutinise your sales and marketing strategy to ensure your marketing plan will deliver against your sales forecast. They will also look at your leadership team to validate its level of management expertise and industry knowledge.
In simple terms, your business plan and projected financial model must be robust.