How GGS loan repayments are calculated
Growth Guarantee Scheme term loans are typically repaid in equal monthly instalments using a standard amortising structure. Each monthly payment covers the interest accruing on the outstanding balance plus a portion of the capital. As the loan is repaid, the interest component of each payment falls and the capital component rises.
The standard formula for calculating monthly repayments is: Monthly Payment = P x (r x (1+r)^n) / ((1+r)^n - 1), where P is the loan amount, r is the monthly interest rate (annual rate divided by 12), and n is the total number of monthly payments.
Example repayment tables
The following examples illustrate how loan size, term, and interest rate interact to produce different monthly repayment levels. These are indicative figures only and do not include any arrangement fees.
- £100,000 at 8% over 3 years: approximately £3,134 per month, £12,824 total interest
- £100,000 at 8% over 5 years: approximately £2,028 per month, £21,680 total interest
- £250,000 at 9% over 5 years: approximately £5,194 per month, £61,640 total interest
- £500,000 at 9% over 6 years: approximately £8,868 per month, £138,496 total interest
- £1,000,000 at 10% over 6 years: approximately £18,526 per month, £333,872 total interest
- £2,000,000 at 10% over 6 years: approximately £37,052 per month, £667,744 total interest
The effect of loan term on total cost
Extending the loan term reduces your monthly repayment but significantly increases the total interest you pay over the life of the loan. For a £300,000 loan at 9%, moving from a 3-year term to a 6-year term reduces monthly payments from approximately £9,535 to approximately £5,363, but increases total interest from approximately £43,260 to approximately £85,736.
The right term depends on your business's cash flow position. If the reduced monthly payment from a longer term allows you to maintain healthy working capital and invest in growth, the higher total cost may be worthwhile. If you can comfortably service a shorter-term loan, you will pay significantly less overall.
Arrangement fees and their impact
Many GGS lenders charge an arrangement fee, typically between 1% and 3% of the facility amount. For a £500,000 loan, a 2% arrangement fee adds £10,000 to the cost of borrowing. Arrangement fees are often added to the loan rather than paid upfront, which means you also pay interest on them for the full term.
When comparing offers from different lenders, always calculate the total cost including arrangement fees, not just the monthly payment. A lower interest rate with a higher arrangement fee may cost more in total than a slightly higher rate with no fee.
Planning your debt service coverage
Before committing to a GGS loan, calculate your debt service coverage ratio (DSCR): the ratio of your annual net operating income to your annual debt repayments. Lenders typically want to see a DSCR of at least 1.25x, meaning your income comfortably covers repayments with a buffer.
If your DSCR is tight, consider whether the loan term should be extended to reduce monthly commitments, whether the loan amount should be reduced, or whether alternative financing with a different repayment structure would be more appropriate.
Worked Example
A logistics business wants to borrow £350,000 under the GGS to fund two new vehicles and working capital. It needs to assess whether a 4-year or 6-year term is more appropriate.
- At 9% over 4 years: monthly repayment of approximately £8,715, total interest £68,320
- At 9% over 6 years: monthly repayment of approximately £6,270, total interest £101,240
- The business currently generates £12,000 per month in net cash after existing commitments
- The 4-year term leaves a £3,285 buffer per month (DSCR approximately 1.38x) - comfortable
- The 6-year term leaves a £5,730 buffer per month (DSCR approximately 1.91x) - very comfortable
- The business chooses the 4-year term to minimise total interest cost while maintaining an acceptable DSCR
The business secures a £350,000 GGS facility at 9% over 4 years. By comparing terms before applying, it saves approximately £32,920 in total interest compared to the 6-year option, while maintaining a healthy debt service coverage ratio.
Frequently Asked Questions
Are GGS loans interest-only at the start?
Some lenders offer an initial capital repayment holiday of 3 to 12 months, during which you only pay interest. This can help businesses manage cash flow in the early stages of the loan. Capital and interest repayments then begin after the holiday period. The capital repayment holiday increases total interest paid over the term.
Can I make overpayments on a GGS loan?
Most GGS lenders allow overpayments and early repayment, though early repayment charges may apply. Check your facility agreement for the specific terms. Making overpayments reduces the outstanding balance and therefore the total interest payable.
What happens if I miss a repayment?
Missing a GGS loan repayment will typically trigger a late payment charge and may be reported to credit reference agencies, affecting your business credit score. Persistent missed payments could lead to the lender exercising the government guarantee and pursuing recovery. If you anticipate difficulty making payments, contact your lender as early as possible to discuss restructuring options.