Rachel Reeves has announced reforms to small business finance that could benefit tens and thousands of small and medium-sized enterprises (SMEs).

The government-backed Growth Guarantee Scheme (GGS) is to be expanded, with an additional £2 billion a year in lending support planned by 2028/29.

At the moment, the estimated gap between SME demand for finance and the amount available is between £1.6bn to £4.1bn a year. 

But it’s hoped the changes to GGS will help more small business owners access the finance they need to invest, grow and create jobs.

What is the Growth Guarantee Scheme?

The GGS provides a 70% government guarantee on loans of up to £2 million for eligible SMEs.

By reducing the level of risk faced by lenders, the scheme is designed to encourage banks and finance providers to support viable businesses that may otherwise struggle to secure funding.

Since launching in 2022, the scheme has supported £3.7bn of finance for around 8,000 SMEs.

Under the new plans, government-backed lending available through the scheme will increase from £1.35bn a year to £3.35bn a year.

Meanwhile, the maximum term length of a loan for loans of up to £1.1m will be increased from six to ten years.

In addition, the maximum size of businesses that are eligible for a loan under the scheme will increase from £45m in annual turnover to £54m.

How many firms stand to benefit?

According to the British Business Bank, these changes could support an extra 12,000 businesses a year by 2028-29.

That’s up from 8,000 at the moment - an increase of 150%.

“Small businesses are the backbone of this economy and growth in all our regions,” Reeves said.

“For too long, they have heard ‘no’ when trying to raise the funds they need to grow and create jobs across the UK.

“When they succeed, we all succeed, and today’s major reforms are the most significant step in years to unleash their potential.”

Business groups back changes

The reforms have been widely welcomed by the business community, with the Federation of Small Business saying it’s “pleased” that its calls to expand GGS “have been heard”.

National chair Martin McTague said: “Expanding resources and extending payment terms will help small businesses build wealth in every part of the country.

“Small firms need as many finance options available to them as possible right now.”

Shevaun Haviland, director general of the British Chambers of Commerce, added that “it’s important that we do not stop here if we want to help make the UK the best place to start and grow a business”.