Government-Backed Finance in the UK Since 2019

Since 2019, the UK government has implemented various financial support schemes to bolster the economy, particularly in response to the COVID-19 pandemic. These initiatives have been crucial in supporting businesses, protecting jobs, and ensuring economic stability during unprecedented times.

Pre-Pandemic Financial Support

Before the pandemic, the UK government had several schemes in place to support businesses and stimulate economic growth. These included the Enterprise Finance Guarantee (EFG), which provided lenders with a government-backed guarantee for loans to small businesses that lacked sufficient security to secure conventional financing. Additionally, the British Business Bank played a significant role in increasing the supply of credit to small and medium-sized enterprises (SMEs) through various programs.

COVID-19 Response: Emergency Loan Schemes

The onset of the COVID-19 pandemic in early 2020 necessitated swift and substantial government intervention to prevent economic collapse. The UK government introduced several emergency loan schemes to provide immediate financial relief to businesses:

1) Bounce Back Loan Scheme (BBLS)

Launched in May 2020, this scheme aimed to help small and medium-sized businesses access finance more quickly during the pandemic. Businesses could borrow between £2,000 and £50,000, with the government guaranteeing 100% of the loan. By March 2021, over 1.5 million loans worth £47 billion had been approved.

2) Coronavirus Business Interruption Loan Scheme (CBILS)

This scheme provided financial support to smaller businesses affected by the pandemic. It offered loans of up to £5 million, with the government guaranteeing 80% of the finance to the lender. By March 2021, CBILS had facilitated loans worth £23.28 billion.

3) Coronavirus Large Business Interruption Loan Scheme (CLBILS)

Targeted at larger businesses, CLBILS offered loans of up to £200 million, with an 80% government guarantee. By March 2021, this scheme had supported businesses with loans totalling £5.3 billion.

4) Covid Corporate Financing Facility (CCFF)

This scheme aimed to support larger firms by purchasing short-term debt in the form of commercial paper. It provided £104 billion in support to businesses, helping to protect approximately 2.5 million jobs.

Post-Pandemic Recovery: Ongoing Support

5) Recovery Loan Scheme (RLS)

As the immediate crisis of the pandemic began to subside, the UK government introduced the Recovery Loan Scheme (RLS) in April 2021. This scheme aimed to ensure that businesses of all sizes could continue to access finance as they recovered. RLS provided loans and asset finance, with the government guaranteeing 80% of the finance to the lender as well as not requiring a personal guarantee on loans up to £250,000.

The scheme was initially set to run until December 2021 but was extended due to ongoing economic challenges. This scheme then evolved in September 2023, with the second iteration reducing the lender’s guarantee to 70% and switching the no personal guarantee clause to lenders being unable to take a borrower’s personal private residence as security.

6) Growth Guarantee Scheme (GGS)

The Growth Guarantee Scheme is the current government-backed finance facility, launched on 1^st July 2024 and expected to run until 31st March 2030. The scheme was designed for small businesses with a turnover less than £45m, allowing them to borrow between £1k and £2million over terms up to 6 years.

The Growth Guarantee Scheme (GGS) aims to provide greater certainty over credit risk, enabling lenders to provide finance to more viable smaller businesses that they wouldn’t otherwise consider. If an Accredited Lender can offer a commercial loan on better terms, they will do so.

The maximum amount for a facility provided under the scheme is generally £2m per business group for borrowers outside the scope of the Northern Ireland Protocol, and up to £1m in accordance with the relevant legal agreement(s)) per business group for Northern Ireland Protocol borrowers. Minimum facility sizes vary, starting at £1,000 for asset finance, invoice finance and asset-based lending, and £25,001 for term loans and overdrafts.

Personal guarantees can be taken at the GGS Accredited Lenders’ discretion, in line with their normal commercial lending practices. Taking security over Principal Private Residences is strictly prohibited within the Scheme though.
Growth Guarantee Scheme-backed facilities are provided at the discretion of the Accredited Lender GGS accredited lenders are required to undertake standard credit and fraud checks for all applicants.

Learn About The Growth Guarantee Scheme (GGS) Direct From The British Business Bank.

Impact & Effectiveness of Government-backed Funding

The government’s financial support schemes have had a significant impact on the UK economy. According to HM Treasury, nearly £80 billion worth of emergency government-backed loans were provided during the pandemic, supporting over 1.6 million businesses. These measures were crucial in protecting jobs and livelihoods during a period of unprecedented uncertainty.

The Office for National Statistics (ONS) reported that government spending increased from 39.6% of GDP in 2019/20 to 53.1% in 2020/21, reflecting the substantial financial intervention required to mitigate the pandemic’s economic impact. This increase in spending was accompanied by a rise in government borrowing, which reached record levels.

Challenges & Criticisms

Despite the success of these schemes, there have been criticisms and challenges. Some businesses reported difficulties in accessing the loans, particularly smaller firms that lacked existing relationships with lenders. Additionally, there were concerns about the long-term sustainability of the increased government borrowing and its impact on public finances.

The National Audit Office (NAO) highlighted issues related to the oversight and management of the loan schemes, including the risk of fraud and the need for effective monitoring to ensure that the funds were used appropriately. The government has since taken steps to address these concerns, including implementing stricter eligibility criteria and enhancing fraud prevention measures.

Conclusion

Government-backed finance has played a crucial role in supporting the UK economy since 2019, particularly during the COVID-19 pandemic. The various loan schemes introduced by the government provided essential financial relief to businesses, helping to protect jobs and livelihoods during a period of unprecedented economic disruption. While challenges and criticisms remain, the overall impact of these measures has been positive, contributing to the UK’s economic recovery and resilience.

As the UK continues to navigate the post-pandemic landscape, ongoing government support will be vital in ensuring that businesses can thrive and contribute to sustainable economic growth. The lessons learned from the implementation of these schemes will be invaluable in shaping future financial support initiatives and ensuring that they are effective, efficient, and equitable.

FAQ Category

• Government-backed Finance FAQs

Government-backed Finance FAQs

What are government-backed loans?

Government-backed loans, currently the Growth Guarantee Scheme (GGS) is a scheme where the government provides the Accredited Lender with a 70% government backed guarantee against the outstanding balance of the facility after it has completed its normal recovery process, reducing the risk for the lender and making it easier for businesses to access finance. These loans are designed to support businesses, especially during challenging economic times. The borrower always remains 100% liable for the debt.

What was the Bounce Back Loan Scheme (BBLS)?

The BBLS was introduced in May 2020 to help small and medium-sized businesses access quick finance during the COVID-19 pandemic. Businesses could borrow between £2,000 and £50,000, with the government guaranteeing 100% of the loan. See more details on our Bounce Back Loans (BBL) page.

How did the Coronavirus Business Interruption Loan Scheme (CBILS) work?

CBILS provided financial support to smaller businesses affected by the pandemic. It offered loans of up to £5 million, with the government guaranteeing 80% of the finance to the lender. This scheme helped businesses manage cash flow and continue operations during the pandemic.

What was the Recovery Loan Scheme (RLS)?

The RLS was introduced in April 2021 to ensure businesses could continue to access finance as they recovered from the pandemic. It provided loans, overdrafts, and other forms of finance, with the government guaranteeing 80% of the finance to the lender. RLS stopped taking applications on 30th June 2024.

How much financial support did the UK government provide during the pandemic?

The UK government provided nearly £80 billion worth of emergency government-backed loans during the pandemic, supporting over 1.6 million businesses. This support was crucial in protecting jobs and livelihoods during a period of unprecedented economic disruption.

How did the government address concerns about fraud in government-backed schemes?

The government implemented stricter eligibility criteria and enhanced fraud prevention measures to address concerns about the misuse of funds. The National Audit Office (NAO) also highlighted the need for effective monitoring and oversight.

What role did the British Business Bank play in Gov-backed schemes?

The British Business Bank played a significant role in increasing the supply of credit to small and medium-sized enterprises (SMEs) through various programs, including the Enterprise Finance Guarantee (EFG) and the emergency loan schemes introduced during the pandemic.

How has government spending changed since the pandemic?

Government spending increased significantly during the pandemic, rising from 39.6% of GDP in 2019/20 to 53.1% in 2020/21. This increase reflected the substantial financial intervention required to mitigate the pandemic’s economic impact.