The Recovery Loan Scheme becomes the Growth Guarantee Scheme
The Recovery Loan Scheme (RLS)has been replaced by the Growth Guarantee Scheme (GGS). The new scheme provides a 70% Government guarantee on loans to SMEs of up to £2m million in Great Britain, and £1m in Northern Ireland.
The original Recovery Loan Scheme was put in place to help SMEs grow and invest through government-backed loans. It was seen as a lifeline for many smaller firms, who were still reeling from the effects of Brexit and COVID. The scheme was also very popular, with government figures showing that it has supported almost 19,000 businesses, each borrowing an average of £202,000.
The new Growth Guarantee Scheme is essentially another extension of the original scheme, which was due to end in June 2024 (the current plan has the Growth Guarantee Scheme running until the end of March 2026). The continuation of government support is great news for smaller businesses, especially those battered by economic turbulence over the last few years.
Although we have a fresh government in place, the scheme is expected to continue. We look forward to hearing how small businesses will be further supported, especially as Labour made a pledge in their manifesto to improve access to finance for smaller businesses, especially startups.
In this article, we answer frequently asked questions about the Growth Guarantee Scheme.
What is the Growth Guarantee Scheme?
The Growth Guarantee Scheme replaced the Recovery Loan Scheme on the 1st of July 2024. Accredited lenders can offer a range of finance solutions including asset finance, invoice finance and business loans.
These lenders must first offer their standard products, but if these can’t be used, they can use a 70% government-backed guarantee to give extra security so that they can lend as part of the Growth Guarantee Scheme. It’s important to remember that this guarantee is there to facilitate the finance, but the borrower is still liable for the entirety of the debt.
An SME must make more than half of its income from UK-based trading to be eligible for a loan. The business must not be in any financial difficulty and they have to be able to afford what they’re borrowing. This means that businesses will still face all the usual credit and fraud checks.
What is classed as an SME for the purposes of applying for finance through the Growth Guarantee Scheme?
An SME is essentially any smaller business with no more than £45m turnover. If an SME is part of a group, then the whole group’s income is considered.
Can every industry use the Growth Guarantee Scheme?
Businesses from every sector can use the Growth Guarantee Scheme; however, some sectors, including agricultureand fisheries/aquaculture are subject to a borrowing cap.
What can the Growth Guarantee Scheme be used for?
One clear benefit of the Growth Guarantee Scheme is that the finance can be used for a wide range of reasons. An SME might choose to hire new staff, upgrade their equipment or buy new plant and machinery, fit out their premises or invest in new vehicles. These could also use the cash for simply boosting working capital or helping to manage their cashflow.
What is the minimum SMEs can borrow under the Growth Guarantee Scheme?
With Origin Finance, businesses can borrow from £10,000 with asset finance and invoice finance. For loans, borrowing starts at £25,001, through the Growth Guarantee Scheme.
Can SMEs borrow with the Growth Guarantee Scheme if they’ve previously used another government-backed scheme?
Yes! Even if your business has used the Coronavirus Business Interruption Loan Scheme (CBILS), Coronavirus Large Business Interruption Loan Scheme (CLBILS), Bounce Back Loan Scheme (BBLS) or the Recovery Loan Scheme (RLS) you’re still able to apply for finance with the Growth Guarantee Scheme. However, if you have borrowed under a previous scheme, it’s likely that you won’t be able to borrow as much using the Growth Guarantee Scheme.
Does borrowing under the Growth Guarantee Scheme require a personal guarantee?
Not necessarily. Personal guarantees are at the lender’s discretion and will often depend on your circumstances.
How can Origin Finance help?
Despite being a government-backed scheme, interest rates, fees, and term lengths from lenders will still vary. As a broker, we can find the best solution available for your business. This can provide huge value for you as securing a competitive rate over a length of time that works for you can make a big difference to your day-to-day finances. What’s more, we don’t charge for our services, as we’re directly remunerated by the lender.
By partnering with Origin Finance, you’ll also be speaking to a passionate team with a wealth of experience in helping smaller businesses succeed. They’ll be able to advise you on the options available and even complete the paperwork to give you the best possible chance of success.
Get in touch for a free, no-obligation quote today.
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Are you thinking of taking the leap and buying a business?
Buying an established business can be an attractive option for many, as you’ll be purchasing a known quantity with historical records of profitability to help with forecasting and putting a business plan together. What’s more, you’ll start with an existing customer base as well as having assets and staffing already in place.
You’ll also likely see cash flow from day one and save on many of the outlays from starting a new business from scratch. You may even already have an in-depth knowledge of the day-to-day running of the company if you are part of the existing management team (and are considering a buyout). It can also be easier to get finance for buying an existing business, as you’ll be able to show financial records that attest to the viability of your venture.
For those who have decided to buy, we answer some commonly asked questions about the finance options available for acquiring a new business as well as for management buyouts.
What’s the difference between an acquisition and a management buyout?
An acquisition is when you buy a business by purchasing most, or all, of its shares to gain a controlling interest. A management buyout (MBO) is also a form of acquisition, except that it’s when the business is bought by the company’s existing management team.
A management buyout can be an attractive option for several reasons. Not only does it save going to market and disclosing potentially sensitive information, but the managers will intimately understand the company’s workings. This means that the seller can leave with the comfort of knowing that things will be left in good hands for the future, resulting in a smooth transition that’s beneficial for all involved.
The main obstacle for management buyouts is that the managers may not necessarily have the resources or funding to buy the business. This can also be an issue for business acquisitions. But there are tried and tested options available.
How do you get an acquisition or management buyout loan?
There are several routes available if you’re looking to buy a business, and these are available even if you’re not an experienced business owner. Options include:
Business loans
One of the most common ways to finance an acquisition or buyout is through a business loans, which allows you to borrow up to £2M for buying a business.
Equipment refinance
Another option for asset-rich businesses is using equipment refinance to leverage their existing assets for a management buyout, which will allow you to release roughly 80% of the business’s current equipment value as working capital (you can carry on using the equipment while it’s on refinance).
Franchise finance
If you’re looking to take on an existing franchise such as a coffee shop or fast food restaurant, then there’s always the option of franchise finance, which can fund the entire franchise cost.
What other loans are available to help for buying an existing business?
Sometimes it’s not about raising the capital for initially buying a business, it’s about bringing something new to the table through modernisation or simply just giving things a refresh.
There are options available if you’re looking to fund new equipment, or even if you want to finance a refit of the existing premises (including building works and decoration so you can really make the business feel like your own). Wherever you need funding, there’s likely to be options available to help.
Can you get an unsecured business acquisition loan?
Where possible we try to provide unsecured loans for management buyout or acquisition loans. We do also have access to lenders who are able to provide secured business loans.
Examples of business acquisition loans
You can get financing for buying virtually any type of business you can think of. From dental practices and accountants to florists and hotels. Whatever you’re thinking of buying, we’d love to help.
How Origin Finance can help
As a specialist broker in acquisition finance, we have access not only to high street banks but also to niche and private lenders. This means that we can find financial support for virtually all of your requirements.
We’ll help you prepare the paperwork, ensuring that your application is as strong as possible.
Reach out for a free, no-obligation quote to find out how we can help secure funding for your acquisition.