With a normal bank loan, banks will provide financial support through either a loan or an overdraft but will require that the business can demonstrate some form of security against defaulting on its loan payments, often called collateral.
However the government has provided a way of getting a bank loan without this form of security for small businesses through the Small Firms Loan Guarantee scheme (SFLG). The interest rate is normally not a preferential one and can be slightly more. To qualify you should be able to show that you have a good business plan and meet the relevant eligibility criteria (ask your participating bank contact - see below).
The SFLG is a joint venture between the DTI and several high street banks (see participating banks).
The government will guarantee 75% of the loan, easing the need for secure collateral. Ideal if you have a good business plan but little assets. Note that it is still a loan - not a grant. The cost of the guarantee is an additional 2% per year on the outstanding loan amount, paid to the DTI on top of whatever loan rate the bank is charging.
Changes to the SFLG took effect from 1 December 2005 to reflect the recommendations of the Graham Review. As a result, the SFLG focuses on newer businesses and the main features and criteria of the scheme are:
- Maximize SFLG's impact on UK productivity;
- Target SFLG onto small firms which face the greatest difficulties in accessing finance;
- Encourage a more consistent availability of SFLG so that more small firms can access the programme;
- Ensure firms can access a greater level of funding to support their needs; and
- Reduce the administration and bureaucracy of operating SFLG so that they do not limit the availability and popularity of the programme.
It is available to guarantee loans of up to £250,000 and with terms of up to ten years for qualifying UK businesses with an annual turnover of up to £5.6m and which are up to five years old. This is generally determined by the date the business came within the charge of corporation tax (for a company) or became liable to pay class 2 National Insurance contributions (for a self-employed individual).
To get started, have a look to make sure you are eligible, get your business plan together (there is other free advice on business plans elsewhere in Company Partners resources) and approach a participating bank to ask if you can obtain a SFLG loan application.
