Small Firms Loan Guarantee Scheme - New eligibility rules

With sweeping changes to the Small Firms Loan Guarantee (SFLG) to be introduced later this year, businesses are being urged to examine the new eligibility criteria of the scheme.

The changes come after the Government accepted in full the recommendations set out in the Graham Review of the SFLG, which benchmarked the UK scheme against several international loan guarantee programmes and set out 38 recommendations to ensure the continuing relevance of the SFLG.

The new scheme will see a raft of changes that include:

- Expansion of lending limits so a single £250,000 limit applies to all eligible Small and Medium Enterprises (SMEs);

- Raising the turnover limit for all eligible SMEs to £5.6m;

- Reserving resources to incentivise a range of new lenders to join the scheme;

- Reserving resources to enable additional SFLG lending by banks that demonstrate a clear focus on high-growth SMEs; and

- Removing the limit on the level of borrowing that individuals can be associated with (the so called "connected persons" rule), thus centering the lending decision on the quality of the business case, not the previous borrowing history of individuals involved with the business.

Along with implementation of these far reaching changes, the focus of the scheme will move to start-ups and young businesses. This will see the availability of SFLG limited to those SMEs under five years old, as these are the businesses which have had least opportunity to build up a financial track record and assets against which to secure borrowing.

In its current form, businesses which have been trading for over five years are eligible to apply for a SFLG. In order that qualifying applications from those businesses that will cease to be eligible under the new criteria can be guaranteed before 1 December 2005, it is necessary that fully documented applications be with lenders by close of business on 28 October 2005.

Further information on the SFLG and for a listing of approved lenders, visit: http://www.dti.gov.uk/sflg/