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How does the Small Firms Loan Guarantee Scheme work? |   |
For small businesses that need capital to get started or grow, there is a government-backed scheme to make it easier to borrow money.
The Small Firms Loan Guarantee Scheme is particularly useful for businesses that have been turned down for loans elsewhere, because they don’t have enough assets to secure the loan.
It’s backed by the snappily-titled Department for Business, Enterprise & Regulatory Reform, which replaced the DTI.
You borrow from one of a number of approved lenders (see the up-to-date list here).
The government guarantees 75 per cent of the loan amount. That will cost you a two per cent premium on the outstanding balance of the loan.
You can borrow between £5,000 and £250,000 for up to 10 years.
But your business must turnover less than £5.6 million.
That date is generally calculated from the time your business started paying Corporation Tax, or Class 2 National Insurance contributions if you are self-employed. There is more guidance on the government’s definition of your business’s age here
The scheme is a huge help for growing small businesses, but still comes with the usual warnings.
Some banks may be reluctant to lend on the scheme until they have exhausted their other lending options, including overdrafts, mortgages and even invoice factoring.
You will still need to put up some security for the 25% of the loan that isn’t guaranteed by the government. If your business doesn’t have appropriate assets, that could include your home, which will then be at risk if you default on the loan.
The lending bank will also carry out a credit check on you and your business.
The general advice from experts is to try and project your cash flow for the term of the loan, and not to apply for more money than you think your business can comfortably repay.
Further Reading
Small Firms Loan Guarantee Scheme - Advice & Application Guide
Remember to get professional advice from a qualified accountant before taking any action. Don’t rely purely on information contained in this article.
Posted July 16, 2007
Small companies applying for the Government’s Enterprise Finance Guarantee (EFG) scheme are being urged to ‘do their homework’ in the face of stiff assessment criteria. [June 24, 2009]
Most small businesses will, at some stage, seek funding or investment - for growth, starting up, or to see them through a transitional period (or a downturn). In this high level article, we look at the main sources of funding that are available. [May 28, 2009]
A guide to business angels - what they are, what they can provide, and how to work out if an outside investor is the right person to seek for your small business. [May 26, 2009]
Businesses left struggling to find working capital or replacement to bank debt can instead turn to the rising prominence of angel investment as a viable alternative. Here are some top tips to help steer them through this sector: [May 6, 2009]
VCs invest money into businesses they believe have potential for significant growth. They get their returns by taking their share of the profits each year, or by getting a significant return on their investment when the business is sold. [April 16, 2009]
The government has announced the launch of the Enterprise Finance Guarantee Scheme (EFG). It aims to help businesses with a turnover of up to £25 million to secure bank loans of up to £1 million. [January 14, 2009]
As traditional sources of business funding have become harder to get hold of over the last year, more and more businesses are turning to alternative sources of finance, including asset based lending. We look at what this type of funding involves. [September 12, 2008]
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With a 10% increase in business failures in the second quarter of 2008, it has never been more important for small companies to maintain a good credit rating. Article includes essential tips to maintain a good business credit score and a low risk profile. [August 4, 2008]
With credit currently in short supply, here is an overview of the various options open to small businesses looking to raise funds. Small business funding options include bank overdrafts, business loans, asset finance, invoice finance, and other types of investment funding. [July 11, 2008]
When it comes to selling a business, the most important question you need to ask is - how much is it worth? In this article, we look at some of the most commonly used valuation techniques, and how other factors may influence the value of a business at any given time. [June 25, 2008]
Small business loans can provide a very flexible solution to any type of funding requirement. This article provides a high level overview of startup loans and what to look out for. [March 25, 2008]
There are some clear steps you can take before meeting your bank manager that will increase your chances of getting the business loan you need. [August 22, 2007]
Banks have a number of tough rules that you need to know before you approach them for a loan. Here are the secrets behind getting that business bank loan. [August 21, 2007]
The Small Firms Loan Guarantee Scheme is particularly useful for businesses that have been turned down for loans elsewhere, because they don’t have enough assets to secure the loan. [July 16, 2007]
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