The Growth Guarantee Scheme, or GGS, launches in the UK on 1 July 2024. But, other than the name, the British Business Bank has yet to point out any tangible changes from its predecessor, the Loan Recovery Scheme (LRS).
The key feature remains the same: The government is incentivising lenders to finance SMEs by providing a 70% guarantee on the funding.
Having seen LRS in action over the past two years – and the original incarnation, 2020’s Coronavirus Business Interruption Loan Scheme (CBILS) – we’ve identified six key lessons for SMEs considering funding.
It’s important not to assume you’re getting a good deal just because a lender is using GGS to offer a lower rate or different finance facility.
Different lenders will have different rates and terms on their standard products. For example, a lower rate could be offset against higher set up fees. The degree of discount and markup under GGS will also vary between lenders.
Additionally, it’s worth also approaching lenders outside the GGS. The specialist products these lenders provide may be more competitive or appropriate for your circumstances. This is particularly the case for invoice financing and revolving credit facilities.
Rates are not the only consideration when comparing products, as terms such as early repayments or payment holidays may be important to you and your business.
When CBILS ended, it took some lenders two weeks to get certified under LRS. If the same delay happens when LRS ends, small business owners must account for the fact that they may not be able to get new government-backed funding for the first half of July.
Urgent funding should be secured by 30 June. If you miss this deadline and have to wait for your lender to get GGS accreditation, you may want to consider a short-term bridging facility. Some of these products can be set up in as little as 48 hours.
When taking a GGS funding facility, be clear which of the two GGS benefits you are expecting to receive and request comparisons, in writing, from lenders.
Under GGS, a facility that you do qualify for should be provided at a lower price. If this applies to you, ask your lender to share what rate, fees, and overall cost you would be paying if you didn’t use GGS, so you can see the total discount on offer.
Where you are using GGS to access a facility that you usually would not qualify for, first ask your lender to explain why you don’t qualify. This allows you to be sure it isn’t due to something that is easily addressed such as missing paperwork. Next, ask your lender what rates and terms qualifying businesses would be subject to, so you can clearly see any mark-up they are applying to your deal and decide whether you think it is fair.
While the intent is to enable more SMEs to access funding, this is done by protecting lenders, not SMEs. The British Business Banks makes it clear: “Your business remains 100% liable for repayment of the facility.”
This means that the government doesn’t step in to help you, per se. The lender will still pursue you to recover any funds owed and only once they have exhausted all other avenues – including business assets and anything covered by a personal guarantee – will the government reimburse them 70% of the outstanding amount.
Being government backed doesn’t mean you will always avoid providing a personal guarantee, but the British Business Bank does stipulate that for a government-backed product “neither a borrower’s nor a guarantor’s principal private residence can be taken as security or in support of a personal guarantee.” So your home is safe.
Certain aspects of a personal guarantee can be negotiated. For example, the percentage of the loan covered by the guarantee and the duration that the guarantee stands for, either before being removed or renegotiated.
If comparing across dozens of products and lenders sounds like a lot of effort – and it can be – remember that these comparisons and negotiations are what we at Risecap do day in and day out.
We offer free, unbiased guidance and bespoke financing solutions that aren’t available from high street banks. And unlike many other commercial finance brokers, we prioritise client empowerment and will never give you the hard or push certain products.
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0203 089 7919
hello@risecap.co.uk
3rd Floor,
86-90 Paul Street,
London EC2A 4NE
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