June 11, 2024

UK businesses looking to boost their revenue can benefit from government-backed loans through the Recovery Loan Scheme (RLS).

After successfully supporting businesses following the economic impact of the coronavirus pandemic, Chancellor Jeremy Hunt revealed in the Spring Budget that the RLS has been extended for a further two years and renamed as the Growth Guarantee Scheme (GGS).

The British Business Bank reports that the initial phases of the Recovery Loan Scheme provided £4.52 billion in government business loans through 20,643 facilities. The third phase, launched in August 2022, has offered £1.14 billion, supporting over 6,000 SMEs with government backed loans totalling £1.15 billion.

This support, through the growth guarantee scheme, comes at a critical time when SMEs need substantial help to continue growing.

SMEs Need This Support Now More Than Ever

According to the Department for Business & Trade, SMEs, which make up 99% of UK businesses, employed 16.7 million people and generated £2.4 trillion in turnover in 2023. Start-ups and smaller businesses, heavily impacted by the Covid-19 pandemic, often face the toughest financial challenges. This is where government backed loans become essential.

The aftermath of the pandemic, Brexit, geopolitical tensions, external support, the cost of doing business, and a lack of innovation are all obstacles stopping SMEs from bouncing back. Labour shortages further exacerbate these challenges, making financial external support more critical than ever.

Thankfully, the RLS is successfully targeting small businesses. According to the British Business Bank, more than 90% of the guaranteed facilities supported businesses with fewer than 50 employees. Of that 90%, more than 65% of facilities were provided to businesses with less than 10 employees. Over 87% of the facilities have gone to businesses with less than £5 million turnover.

The Extended Version: Growth Guarantee Scheme

The extended version of the scheme has been renamed the Growth Guarantee Scheme and will officially launch on July 1, 2024. The terms of the new scheme remain similar to the RLS and are expected to support around 11,000 businesses between July 1 and March 31, 2026.

The Loan Isn’t Just About Recovery

While initially launched post-pandemic, government business loans through the RLS can be used for a variety of purposes beyond recovery. Businesses could be eligible for up to £2 million, with those in Northern Ireland eligible for up to £1 million. These loans can be used for managing cash flow, investing in new equipment, achieving net zero goals, hiring employees, or expanding your business.

For example, Allica Bank utilised the RLS to help a Scottish family-owned scaffolding business acquire new equipment for a major contract. Such asset finance was made possible with the help of the RLS.

Addressing Labour Shortages and Inflation

Competitive markets and labour shortages are significant issues facing SMEs. According to the Enterprise Research Centre, the proportion of small firms expanding their workforce fell by 40% between 2012 and 2022. Research from Iwoca stated that SMEs reported 459,000 vacancies in May last year, a 25% increase compared to 2019. Micro businesses reported 143,000 vacancies in June 2023.

Inflation, which stood at 2.3% in April, has impacted the cost of living and increased demands for better salaries. The RLS / GGS can help businesses attract and retain employees by offering higher salaries or enhanced benefits.

Improving Sustainability

The British Business Bank revealed that 57% of SMEs are aware of the government’s goal to reach net zero by 2050, but 35% cited cost as a barrier. Only 11% of SMEs have used external finance to improve sustainability. The scheme can support investments in solar panels, environmentally friendly chemicals, better packaging, hybrid batteries, smart meters, or low-emission vehicles.

In closing, it’s important to note that while government backed loans guarantee 70% of the finance to lenders, borrowers remain 100% liable for the debt. To qualify for the RLS, your business must be trading in the UK with a turnover of £45 million or less. You will also need to show that your business is viable and not in difficulty. Lenders may take personal guarantees for facilities of all sizes, but a borrower’s principal private residence cannot be taken as security.

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