Growth Guarantee Scheme
The Growth Guarantee Scheme is aimed at facilitating access to financing for smaller businesses in the UK looking to invest and expand. Launched on July 1, 2024, in partnership with accredited lenders, it offers a variety of financial products such as term loans, overdrafts, asset finance, invoice finance, and asset-based lending.
Under this scheme, businesses can typically secure facilities of up to £2 million, backed by a 70% government guarantee for lenders.
For borrowers outside the Northern Ireland Protocol, the maximum facility size is £2 million. Those within the protocol can borrow up to £1 million, although certain sectors, like agriculture and fisheries, may have lower borrowing limits.
Businesses can utilize these funds for legitimate purposes, including cash flow management and investments, but they must ensure they can handle the additional debt.
Key Features of the Growth Guarantee Scheme
The Growth Guarantee Scheme is designed to enhance borrowing terms for small businesses. If lenders can provide a commercial loan with more favorable conditions, they are encouraged to do so.
Key Features Include:
Funding Limits: The maximum facility amount is typically £2 million per business group for borrowers outside the Northern Ireland Protocol, while those within the protocol can borrow up to £1 million. Minimum facility sizes start at £1,000 for asset finance, invoice finance, and asset-based lending, and £25,001 for term loans and overdrafts.
Product Variety: The scheme supports a broad range of products, including term loans, overdrafts, asset finance, invoice finance, and asset-based lending, though not all lenders may offer every product.
Loan Terms: Term loans and asset finance can be secured for periods ranging from three months to six years, while overdrafts, invoice finance, and asset-based lending are available for three months to three years.
Access to Other Schemes: Businesses that have accessed previous schemes, such as CBILS or BBLS, before June 30, 2024, can still apply for GGS. However, borrowing from these previous schemes may affect the maximum eligible amount.
Pricing: Interest rates and fees will differ among lenders, based on the specific loan proposal and factoring in the government guarantee.
Personal Guarantees: Lenders may request personal guarantees at their discretion, but principal private residences cannot be used as security under this scheme.
Government Guarantee: The scheme offers lenders a 70% government-backed guarantee on the outstanding balance after they follow their usual recovery processes. Borrowers remain fully liable for the debt.
Lender Discretion: Decisions on GGS-backed facilities are made at the lender’s discretion, who must conduct standard credit and fraud checks on all applicants.
Eligibility Criteria for the Growth Guarantee Scheme
To qualify for the Growth Guarantee Scheme, businesses must meet the following criteria:
Turnover Limit: The scheme is available to smaller businesses with a group turnover of up to £45 million.
UK-Based: Borrowers must conduct trading activities within the UK and generate more than 50% of their income from these activities.
Viability Test: Lenders must assess that the borrower has a viable business proposition.
Business Stability: Applicants must not be classified as a business in difficulty, meaning they should not be undergoing relevant insolvency proceedings.
Subsidy Limits: Borrowers must provide written confirmation that receiving the GGS facility will not cause them to exceed the allowable subsidy limits. All borrowers receiving subsidies from publicly funded programs must obtain a written statement detailing the level and type of aid received.
FAQs
You might still qualify for a bridging loan even with bad credit, as these loans are secured, making them less risky for lenders. However, your options may be limited, and you could face higher interest rates. To enhance your chances, consider improving your credit score by making consistent repayments, settling any outstanding debts, and maintaining a good gap between your credit limit and usage.
An exit strategy is crucial when applying for a bridging loan, as it’s often a key factor lenders consider. This strategy outlines your plan for repaying the loan within the specified timeframe.
To create an effective exit strategy, begin by detailing how you intend to repay the loan. For instance, you might plan to secure a mortgage on the property once you acquire it or sell it after completing renovations.
Next, establish milestones and a timeline. Consider how long each step will take and what your backup plan is if challenges arise—like a builder getting sick. Will you still be able to meet your loan obligations?
Then, specify how much you need to borrow, your expected earnings, and your personal contribution. Don’t forget to include the amount of your deposit.
Finally, gather supporting documentation to strengthen your exit plan. This may include contracts with contractors, discussions with prospective buyers, or property appraisals.
From application to the funds being released, they usually take anything from a few days to a few weeks.
Only you can answer that question, but do remember due to their short term nature, bridging loans carry increased risk. Consider all your bases and spend some time thinking about what you’d do if something goes wrong.
Typically, you'll need to provide a deposit of around 25% of the property's purchase price. While it may be possible to skip this deposit in certain situations, it’s generally not advisable, as it can lead to higher interest rates and less favorable terms. If you choose to pursue an arrangement without a deposit, it's wise to consult a financial advisor to fully understand the associated risks.
Improve your credit score, build out a strong exit strategy, and leverage a bigger deposit.
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