Recovery Loans Scheme

The Recovery Loan Scheme (RLS) was a UK government initiative designed to aid businesses in their recovery from the Covid-19 pandemic by providing financial support for investment and growth and was initially launched on April 1, 2021. It initially offered businesses the opportunity to borrow up to £10 million supported by an 80% government guarantee and was scheduled to conclude in June 2022. 

It was subsequently reintroduced for an extended period, ultimately closing to new applications on July 1, 2024. The terms of the scheme evolved and by 2022, the maximum loan amount was adjusted to a cap of £2 million accompanied by a 70% government guarantee.

Throughout its duration, over 50 accredited lenders participated offering various loan terms, including facilities up to six years.

Introducing the Growth Guarantee Scheme

Following the conclusion of the Recovery Loan Scheme, the UK government launched its successor, the Growth Guarantee Scheme (GGS), on July 1, 2024. This initiative continues the government’s commitment to supporting access to finance for UK businesses, particularly small to medium-sized enterprises (SMEs), as they navigate economic conditions and pursue investment and growth opportunities.

The GGS was introduced because, despite the end of the immediate pandemic crisis, many businesses still face challenges in securing the finance they need.. Lenders, independently, might perceive certain businesses or loan purposes as carrying higher risk, making them hesitant to lend or compelling them to offer less favourable terms. The government’s guarantee aims to mitigate this risk for the lenders, thereby encouraging them to provide more accessible and potentially better-termed finance to a wider range of businesses. This intervention is designed to bridge a gap in the market where commercial lending might fall short.

Features, Benefits, and Considerations

The GGS provides a 70% government-backed guarantee to accredited lenders on loans they issue. It is important to note that this guarantee is for the lender, meaning the borrower remains fully responsible for repaying 100% of the debt.

Key features of the GGS include:

• Loan Products: The scheme supports various finance options, including term loans, overdrafts, asset finance and invoice finance/asset-based lending.
• Loan Amounts: Businesses can typically borrow up to £2 million per business group, with a lower limit of £1 million for those within the scope of the Northern Ireland Protocol. Minimum loan amounts vary depending on the product, starting from around £1,000
• Lender Discretion: Accredited lenders make the ultimate decision on whether to lend and on what terms, conducting their standard credit and fraud checks. They are expected to pass on the economic benefit of the government guarantee to the borrower.
• Personal Guarantees: Lenders may require personal guarantees from directors as part of their standard practice, but a borrower’s primary residence cannot be taken as security under the scheme.

Benefits for Businesses:

• Improved Access to Finance: The guarantee encourages lenders to offer finance to businesses that might otherwise struggle to qualify for or benefit from better terms. 
• Support for Growth: The scheme aims to facilitate investment, enabling businesses to expand, innovate, and improve their operations.
• Wide Range of Products: The availability across various loan types means businesses can seek funding for diverse needs from working capital to asset acquisition.

Considerations for Businesses:

• Full Liability: Borrowers must remember they are fully liable for the entire debt, despite the government guarantee to the lender..
• Subsidy Limits: The GGS facility is considered a government subsidy and businesses must ensure that taking the loan does not exceed the maximum allowed subsidy over a rolling three-year period.
• Lender Assessment: Businesses still need to demonstrate viability and affordability to the lender, as standard credit assessments apply..

Suitable Businesses and Circumstances

The GGS is designed for a broad spectrum of UK businesses. To be eligible, a business typically needs to be trading in the UK with more than half of its income generated from trading activities and have a turnover of up to £45 million. Certain sectors, like banks, public sector bodies and state-funded schools are generally not eligible.

The scheme is particularly suitable for businesses that:

• Are seeking to grow: Whether through investment in equipment, expansion into new markets, or development of new products.
• Need working capital: To manage day to day operations or seasonal fluctuations in cash flow.
• Are viable but face lending hurdles: If a business has a solid plan but its specific circumstances make standard finance and terms difficult to obtain, the GGS could be a pathway.
• Have previously utilised COVID-19 schemes: Businesses that accessed earlier government-backed schemes are generally not prevented from applying for GGS, provided they meet current eligibility and subsidy requirements.

By understanding the GGS’s structure and its role in bridging lending gaps, businesses can determine if this government backed scheme aligns with their financial needs and growth aspirations.