Government-backed business lending explained

How a guarantee scheme works

Government-backed lending schemes — such as the Growth Guarantee Scheme, successor to the Recovery Loan Scheme and the earlier coronavirus schemes — do not lend money directly. Instead, the government gives accredited commercial lenders a partial guarantee on facilities they issue under the scheme. The lender still makes the loan, sets the terms and runs its own credit checks; the guarantee simply sits behind it.

The purpose is to widen access. By promising to cover part of a lender's loss if a borrower defaults, the government reduces the risk of lending to viable businesses that might otherwise fall just outside a lender's appetite — too young, too thin on security, or in a sector the lender treats cautiously. The scheme nudges a 'no' towards a 'yes' without removing the lender's judgement.

What the guarantee does and doesn't cover

This is the single most misunderstood point, so it is worth stating plainly. The guarantee protects the lender, not the borrower. It is not insurance for your business and it does not write off your debt.

• If your company borrows under a scheme and cannot repay, you still owe the full amount. The guarantee only reimburses the lender for part of their loss after they have pursued recovery.
• It covers a percentage of the lender's loss, not the whole loan — the exact figure depends on the scheme in force at the time.
• Schemes typically restrict personal guarantees, especially on smaller facilities and against a main residence, but they do not always remove them entirely.

So the benefit to you is indirect: easier access and sometimes better terms, because the lender's risk is shared. The repayment obligation remains entirely yours.

Where these schemes fit

Scheme-backed lending tends to suit established but underserved businesses — those with a viable plan but a profile that makes mainstream lenders hesitate. It can open doors and occasionally improve pricing. The trade-offs are that facilities run only through accredited lenders, the eligibility rules and the schemes themselves change over time, and the application can be more involved than a straightforward commercial facility.

It is one route among several, not automatically the cheapest or fastest. Many companies compare a scheme-backed facility against ordinary commercial options on cost, speed and conditions before choosing. Our guide to choosing a business lender sets out how to weigh them side by side.

How commercial finance compares

A purely commercial facility carries no government guarantee, but it can be quicker, simpler and free of scheme eligibility rules — and the terms are set entirely between you and the lender. Where a scheme restricts personal guarantees only partially, some commercial lenders remove them outright as a matter of policy.

Credicorp is a commercial lender to limited companies. We lend to the company with no personal guarantee at all, so your home and personal assets are never pledged for the facility — a cleaner position than schemes that merely limit guarantees. Decisions focus on company affordability and recent trading rather than scheme paperwork. You can explore our business loans or register to apply. This guide is educational and not financial advice; scheme rules change, so always check the current terms with an accredited lender.