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The Recovery Loan Scheme (RLS)has been replaced by the Growth Guarantee Scheme (GGS).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.
If you like this article, you may also enjoy reading:
Too many people are struggling to find finance for their businesses. Why is this?
A recent Parliamentary report on SME Finance found that “2024 is a difficult time to be an SME seeking finance” and that the situation has worsened in the last six years. In 2023, the acceptance rate for an SME applying for finance fell to around 50% (from 80% in 2018). If you bear in mind that SMEs make up 99% of all UK businesses, that means that nearly half of those who apply for finance are getting rejected.
It’s a worrying thought. SMEs are the backbone of our economy, many of which are startups that often rely on finance in their early years so that they can invest and grow to become successful.
Not only are SME’s struggling to find finance, many have become pessimistic about approaching lenders. This seems to be for two reasons. Firstly, there is a lack of trust in lenders and secondly, SMEs are worried about having their applications rejected. Finance acceptance rates for SMEs from high-street banks have been falling ever since the global financial crisis.
The report makes for depressing reading, even going as far as to suggest that many smaller businesses had given up on looking for growth (which has big consequences for the whole of the UK’s economy, affecting everything from our productivity to our employment levels). Recent economic turbulence has also caused problems for hard-working businesses, with many worrying about high interest rates affecting their ability to afford finance as a way of funding investment.It’s clear that too many businesses have just lost faith in the commercial finance industry. At Origin Finance, we share their frustration — especially as we know that it doesn’t have to be this way.
Businesses don’t realise there are other options
One of the most interesting parts of the report was that only 5% of SMEs would consider looking for another lender if their own bank rejected them. The reason given for this shockingly low figure was that many SMEs aren’t aware that there are alternative finance providers on the market who might be able to help them secure the funding they’re seeking.
An “alternative finance provider” is essentially any lender that isn’t a high-street bank. Alternative finance providers can have more flexible lending criteria than high-street banks, making them an option for any SMEs that have struggled to get finance through traditional channels. Many of these are specialists in specific areas, such as providing funding for startups and SMEs. Some may even aim their services towards certain industries like construction, etc. Other lenders will also offer more tailored solutions like Equipment Finance, Invoice Finance and Refinance. There is also the potential for securing lower rates than traditional banks.
The benefits of using a finance broker
The SME Finance report gives two main reasons why SMEs might struggle to secure finance, and using a broker can potentially overcome both of these.
Firstly, a business may have been rejected by their usual bank and not known that there were other options available to them. Believe it or not, there are actually hundreds of finance lenders in the UK — not just the big-name banks. However, nearly half of these lenders will only accept applications that have come via a broker.
Secondly, a business may not be able to afford the rates offered to them by their usual bank. Using a broker gives you a full view of the market, allowing you to look beyond your high-street bank and secure more competitive rates and better terms for your business.
How Origin Finance can help
The finance sector needs to do much more to help SMEs. But there are options out there for ambitious businesses looking for funding.
At Origin Finance, we’ll work hard to improve your chances of successfully securing funding. We do this in several ways.
We start by taking the time to get to know your business. By learning about what drives you and your plans for the future, we’ll be able to present the most suitable financial option(s) for your situation. And every lender is different. They each have their specialist criteria, and some will have a specific lending niche. We’ll use our market knowledge to match your business to a lender who has a track record of providing funding for similar companies so that they’ll understand your needs. We’ll also make your application shine. We know what lenders are looking for, so we’ll do all the paperwork to present your business in the best possible light.
Looking for funding for your business? We’d be happy to have an informal chat about your finance options. Get in touch today.
If you enjoyed this article, you may also like:
Every business needs healthy Working Capital, not only for covering its everyday running expenses but also for helping it grow through investment—whether that’s opening up new premises, repairing or updating equipment, or hiring talented new staff members so that it can take on an exciting new project.
Sometimes managing Working Capital can be challenging for SMEs, especially during difficult economic times or when they’re in the early stages of their growth. In fact, economists have warned that 30,000 businesses could fail in 2024, with smaller businesses being the most likely to go bust.
However, there are finance and loan options available that can ease financial pressures. In this article, we explain the benefits of Working Capital finance as well as highlight the options available to support your business.
What is Working Capital?
Working Capital refers to the operating liquidity that’s available for your business. To explain it simply, your Working Capital is made up of your assets minus your liabilities.
Your assets will be made up of several things, including stock of any goods that you might sell, cash, current accounts receivable (i.e., money owed to your business), and also any plant and machinery such as computers, vehicles, factory equipment, etc.
Your liabilities will be anything that your business owes, such as wages, rent, taxes, expenses, unsettled goods and supplier payments, etc.
What is the difference between Working Capital and cash flow?
Cash flow is how much money your business makes versus how much it spends within a given period of time. Working Capital is the difference between your company’s current assets (including cash and other assets) and your liabilities.A company would use its Working Capital as a measure of whether or not it can pay its short-term debts, and cashflow as a measure of its income.
Why do SMEs need Working Capital?
SMEs struggle to invest without sufficient Working Capital, making growth very difficult. A business without enough working capital wouldn’t be able to cover its running costs and could come into particular difficulty if it faced any unexpected expenses.
What is Working Capital finance?
Working Capital finance can bring cash back into your business to help you manage your day-to-day operations. It can also act as a safety net, protecting against any surprise costs.Below, we highlight some of the finance and loan packages available that can support your available Working Capital.
Invoice Finance
Invoice Finance lets you unlock cash that’s otherwise tied up in unpaid invoices.
Lenders typically allow you to borrow around 85% of the value of any unpaid invoices, which means you’ll quickly receive a payment that can be used to boost your cash flow. This can be a great help for businesses, giving them breathing space for running their day-to-day operations as well as allowing them to take on more projects or make investments without having to wait for any customers who are dragging their heels with payments.
Businesses can use Invoice Finance to protect their Working Capital over the duration of a contract. Through Invoice Factoring (a type of Invoice Finance), you can even sell your outstanding invoices to a third-party lender at a discount, who will then be responsible for collecting any outstanding payments.
Equipment Refinance
Equipment Refinance makes it possible for businesses to use their existing assets to access their Working Capital.
When you refinance, you secure the finance against the current value of owned (or even partly-owned) vehicles, equipment and machinery. Generally, you can secure around 80% of the asset’s value.
If the asset is already on finance, refinancing can be a way of securing more favourable terms, such as a lower interest rate or a change in the time that you need to pay back the lender.
You can keep the machinery and continue to use it, which makes it useful for businesses with a lot of Working Capital tied up in their assets.
Business Loan
Business Loans allow you to borrow money to help fund your essential activities. The loans are then paid back monthly with fixed interest payments.
It’s a fairly flexible loan, so you can use it as you see fit. It allows you to purchase new assets, hire new staff, or even simply for boosting your Working Capital so that you have more space to operate without any financial pressures.
New Start Finance
New Start Finance is specifically tailored for helping SMEs secure the funding they need to get up and running. With New Start finance, you can secure funding for equipment and fit-out works (paying for building materials and construction and installation costs. You can also use New Start Finance to raise Working Capital to cover your initial running expenses.
How Origin Finance can help
At Origin Finance, your success is our priority. We’ll take the time to learn about your business so that we can fully understand your Working Capital needs.
Our experts will find the most competitive lender for your requirements and circumstances and prepare all the paperwork on your behalf. We don’t charge a fee, as we are directly renumerated by the Lender.
Get in touch for a free, no-obligation quote.
If you liked this article, you may also enjoy reading: