Strategy, Legal & Operations

Growth Guarantee Scheme: How the new Recovery Loan Scheme works

Details of the government's Growth Guarantee Scheme have been eagerly awaited. Here's what your business needs to know about it.

Details of the government’s Growth Guarantee Scheme have been eagerly awaited by many small and medium-sized enterprises (SMEs) around the UK.

Brexit, the pandemic and geopolitical tensions are continuing to hit smaller businesses, according to a report by the Enterprise Research Centre.

“Support available to small and medium-sized enterprises is… currently insufficient and too fragmented,” say the report’s authors. “In particular, SMEs need more investment and support on exports, innovation, achieving net zero, and supporting employees with their mental health.”

The Growth Guarantee Scheme – the new name for the Recovery Loan Scheme – which was announced by the Chancellor in the 2024 Spring Budget, promises to give smaller and medium-sized business owners the help they so badly need.

Many business groups and leaders had warned any sudden ending of the previous support package, the Recovery Loan Scheme, in June 2024 would be a cliff edge for smaller companies needing loan guarantees.

In this article, we share more details about the Growth Guarantee Scheme, how it works, who’s eligible, how to access it, and more.

Here’s what we cover:

What is the Growth Guarantee Scheme?

According to the government, the Growth Guarantee Scheme will extend and build on the work of the Recovery Loan Scheme, helping smaller businesses to access the kind of finance that they need to the likes of:

  • Recruit more staff
  • Invest in new plant and machinery
  • Upgrade technology
  • Carry out sales and marketing activities.

Like the previous scheme, the Growth Guarantee Scheme provides a 70% guarantee to participating lenders such as banks and finance houses on lending of up to £2m in Great Britain and £1m in Northern Ireland to smaller businesses.

The government believes it will support around 11,000 businesses between 1 July 2024 and 31 March 2026.

It is, in effect, the fourth version of the Recovery Loan Scheme and the terms of the scheme will, it appears, remain largely unchanged, the aim being to ensure continuity and consistency for both lenders and small businesses who are looking to borrow for investment.

The first two versions of the Recovery Loan Scheme were designed to help British businesses to get access to finance as they recovered from the pandemic.

It gave smaller UK companies access to around £4.3bn of financing.

The third iteration of the scheme, which was launched in August 2022, has provided more than £1bn.

Ninety per cent of the businesses it supported had fewer than 50 employees and approximately 80% of loans have been offered outside London.

The Growth Guarantee Scheme is one of a number of measures announced in the 2024 Spring Budget that the government hopes will help small businesses and drive growth in the economy in these difficult times.

When does the Growth Guarantee Scheme start?

The Growth Guarantee Scheme begins on 1 July 2024, with the Recovery Loan Scheme due to end on 30 June 2024.

How the Growth Guarantee Scheme Works

The Growth Guarantee Scheme is available to small businesses through approximately 60 eligible business finance lenders.

You as a business don’t apply for the Scheme yourself – it comes into play if the lender decides your loan application won’t be strong enough to meet its usual lending criteria.

As well as covering loans, the scheme will also cover asset and invoice financing, with terms extending up to:

  • Six years for loans and asset finance facilities
  • Three years for overdrafts and invoice finance facilities.

Seventy per cent of the loan that lender makes to you is guaranteed by the scheme – and, ultimately, the government.

It’s worth noting that even with this hefty guarantee, these loans are still riskier for the lender and so they usually attract slightly higher interest rates.

More details about what your business can borrow can be found below.

What can businesses borrow?

Businesses in Great Britain can access:

  • Loans or overdrafts between £25,001 and £2m
  • Invoice or asset finance between £1,000 and 2m.

Businesses in scope of the Northern Ireland protocol can access:

  • Loans or overdrafts between £25,001 and £1m
  • Invoice or asset finance between £1,000 and 1m.

Who is eligible for the scheme?

To be eligible for the Growth Guarantee Scheme, your business will have to be trading in the UK for a minimum of two years or more and be generating more than half of its turnover from trading activity.

In other words “buying and selling goods with a view to making a profit or surplus”, according to the government.

More criteria to be aware of:

  • Your business must have a turnover of less than £45m a year
  • Your business must not currently be involved in insolvency proceedings
  • You need to use the loan you receive for a business purpose such as working capital or for investment.

Types of businesses that are eligible

  • Sole traders
  • Limited partnerships
  • Limited liability partnerships
  • Corporations
  • Co-operatives and community benefit societies
  • Other legal entities that carry out business activities in the UK

Who isn’t eligible for the scheme?

The Growth Guarantee Scheme is widely available but there are inevitably limitations.

The following are not eligible:

  • Banks
  • Insurance companies
  • State-funded schools
  • Public sector bodies

It’s not available, either, to individuals, excluding those who are sole traders or partners acting on behalf of a partnership.

How businesses can access the Growth Guarantee Scheme

Before you apply, you should first check to see that your business is eligible for the scheme.

If you do fit the criteria, you can then either go directly to what is expected to be around 60 lenders that are accredited by the government-owned British Business Bank.

These lenders include banks and smaller, specialist business finance houses.

The other option would be to approach a broker who specialises in government-backed finance.

These organisations will research the market to find the best lender with the best deal for your business.

In some cases, they might be able to pull together loans from a number of lenders in order to construct the most appropriate deal for your needs. Brokers argue that they can help you to put together the most effective, persuasive business case to approach a lender with.

Whichever route you take, you’ll have to do your sums, get together all the necessary paperwork and complete a form from the lender.

Essentially, you’ll have to convince them to provide you with the loan by showing that you’ll use it in a way that will build your business and improve its resilience and profitability.

Final thoughts on the Growth Guarantee Scheme

The government has designated 2024 the Year of the SME. This is an acknowledgement of the fact that 99% of UK businesses are SMEs and they support 27 million jobs as well as contributing £4.5tn to the UK economy.

The aim of the Growth Guarantee Scheme is to provide an essential lifeline to SMEs up and down the country who are struggling against the continuing economic headwinds.

It’s worth remembering that although it’s guaranteed by the government, this money is still a loan.

You’ll need to work with your lender or broker, so check that you can meet the interest payments and ultimately repay the loan.

That said, going through the process of applying can in itself force you to take a hard, look at your business and have an external expert ask you some tough questions about your cash flow, balance sheet and other operations.

If you need support, speak to your accountant if you have one.

If you’re looking to invest and develop your business, it might be well worth exploring your options with the government’s Growth Guarantee Scheme.