The Growth Guarantee Scheme (GGS): A guide for SMEs

12/08/2024

The Growth Guarantee Scheme, or GGS for short, is the successor to the Recovery Loan Scheme. It is a government-backed initiative designed to help small and medium-sized enterprises (SMEs) in the UK access the finance they need to grow and expand.

This concise guide will uncover all you need to know about the GGS, from its key features to the application process:

What is the Growth Guarantee Scheme?

The Growth Guarantee Scheme is a lending program that provides government-backed guarantees to lenders, encouraging them to offer loans to SMEs that might otherwise struggle to secure funding. This scheme aims to boost economic growth by supporting businesses with potential for expansion.

What are the key features of the Growth Guarantee Scheme?

• Amount: The Growth Guarantee Scheme can generally support facility sizes of up to £2m per business Group (£1 million for borrowers within the scope of the Northern Ireland Protocol)
• Repayment Terms: Flexible, ranging from 3 months up to 6 years for term loans and asset finance, and up to 3 years for overdrafts, invoice finance and asset based lending
• Interest Rates: Rates will vary depending on the lender, but they will take into account the benefit of the government guarantee
• Government guarantee: 70% of the loan is guaranteed by the government
• Eligible products: The Growth Guarantee Scheme supports term loans, overdrafts, asset finance, invoice finance and asset based lending facilities, although not all lenders will be able to offer all products

Is my business eligible?

To qualify for the Growth Guarantee Scheme, your business must:

• Be based in the UK and generate at least 50% of trade activity in the UK
• Have been trading for at least 2 years
• Have an annual turnover of £200,000 or more, and up to £45m on a group basis
• Demonstrate growth potential or investment needs, and not be considered a “business in difficulty”

It’s important to note that the assistance provided through the Growth Guarantee Scheme is considered a form of subsidy. There are limits to the amount of subsidy a borrower, and their wider group, can receive over any rolling three-year period. This subsidy limit is an important consideration when applying for a Growth Guarantee Scheme loan, as any previous subsidies may reduce the amount a business can borrow. It’s crucial to understand and stay within the applicable subsidy limits to be eligible for the scheme.

What can I use the Growth Guarantee Scheme funds for?

Funding through the Growth Guarantee Scheme can be used for various business purposes, including:

• Hiring new staff
• Purchasing inventory or equipment
• Expanding to new premises
• Investing in marketing or product development
• Supporting working capital needs

How do I apply?

The application process follows these steps:

1. An initial assessment to determine if your business meets the eligibility criteria
2. Preparation of necessary documents (financial statements, business plan, etc.)
3. Application via an online application form
4. The lender will review your application (typically within 24 hours)
5. If your application is approved, funds are typically released quickly

What are the advantages of the Growth Guarantee Scheme?

The Growth Guarantee Scheme offers several significant advantages for SMEs seeking financing. It provides access to substantial funding, enabling businesses to pursue their growth plans. The government backing significantly increases the chances of loan approval, making it easier for businesses to secure funding that might otherwise be out of reach.

One of the most appealing aspects of the Growth Guarantee Scheme is the flexibility it offers in the use of funds, allowing businesses to allocate the money where it’s needed most, whether that’s hiring staff, purchasing equipment or expanding premises. Finally, the scheme boasts a quick decision and funding process, with many applications receiving a response within 24 hours, enabling businesses to act swiftly on growth opportunities.

Are there any potential drawbacks?

The lender may require personal guarantees, despite government backing. However, this is often the case with commercial lending. Principal private residences cannot be taken as security within the scheme. Interest rates might be higher than some secured lending options. Additionally, it isn’t suitable for start-ups or very early-stage businesses.

Are there alternative funding options I could consider?

It’s important to note that Growth Guarantee Scheme either won’t be accessible or the most suitable option for all businesses that require external funding. The most appropriate option will ultimately be different for every business and determined by the reasons funding is required, the company’s immediate challenges and its goals over the short, medium and long term.

The assets of the business are also very relevant when identifying the best funding method. Often, it can be more beneficial to unlock cash that’s already tied up in the value of a company’s assets than to secure a loan.

For instance, a business whose cash flow has been eroded by higher input costs may face additional challenges with the addition of monthly loan or overdraft repayments, despite the immediate cash flow boost. However, if the business sells to customers on credit terms, an invoice finance facility could alleviate many of the cash flow issues by providing access to up to 90% of the value of invoices within 24 hours of their issue, providing the means to fulfil orders, pay suppliers and meet day-to-day costs ahead of being paid by customers.

Or, should that business have significant stock reserves, an asset based lending facility could release cash against that stock to provide an immediate boost – and even unlock further funding against other assets such as plant, machinery, equipment and the sales ledger.

The key is for businesses who are either facing cash flow challenges currently, or expect to in the near future, to explore their options as early as possible so that the right solution can be identified and put in place in good time.

If you’re interested in accessing the Growth Guarantee Scheme or exploring other financing options, our experienced team would be happy to help. We can help you navigate the application process, compare the Growth Guarantee Scheme with other funding options, and find the best solution to support your business’s growth. To speak to our team, please call 0800 9774833, request a call back or contact us via live chat.