The Small Firms Loan Guarantee Scheme
As a small to medium-sized enterprise, you may have viable business plans that need funding, and for which a loan would be appropriate. However, you may be unable to obtain a conventional loan because you do not have assets to offer as security.
The Small Firms Loan Guarantee (SFLG) helps to overcome this by providing lenders with a government guarantee against default in certain circumstances.
The SFLG is a joint venture between the Department for Business, Enterprise and Regulatory Reform (BERR) and a number of participating lenders.
The list of Small Firms Loan Guarantee participating lenders, and Government reports related to the SFLG scheme, can all be obtained from the
BERR website.
Participating lenders administer the eligibility criteria and make all commercial decisions regarding borrowing.
The main features and criteria of the scheme are:
- A guarantee to the lender covering 75 per cent of the loan amount, for which the borrower pays a 2 per cent premium on the outstanding balance of the loan, payable to the BERR.
- The ability to guarantee loans of up to £250,000 and with terms of up to ten years.
- Availability to qualifying UK businesses with an annual turnover of up to £5.6million 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). In the case of a business transfer the five-year age limit applies to both the business making the acquisition and the business being acquired. Read about the five-year rule on the BERR website.
- Availability to businesses in most sectors and for most business purposes, although there are some restrictions.
Supporting Documents:
Q & A - Five Year Business Age Eligibility Rule
In summary, the 'Five Year rule' is the requirement that a business must have been trading for no more than five years to be eligible for a Small Firms Loan Guarantee based loan.
The main issues raised regarding the rule have been as follows:
How is the 'Five Year' period defined?
By reference to the date of coming within the charge of Corporation Tax (for a company) or becoming liable to pay Class 2 National Insurance Contributions (for a self-employed individual). The participating lenders address any more detailed queries in relation to this point or any of the other eligibility criteria once they have established that the use of SFLG would appear to be appropriate.
What if the transaction involves the acquisition of another business?
Then the Five Year rule applies to both the business making the acquisition and the business being acquired.
What is the justification for introducing the Five Year rule?
The Graham Review recognised and ministers agreed that the government has an interest in using its limited resources to the best effect for UK productivity. The Review therefore recommended that, as start-ups and young businesses face greater difficulty in accessing finance than established businesses (primarily because they often have an unproven business concept, have had least opportunity to build up a financial track record and/or assets against which to secure borrowing), eligibility for Small Firms Loan Guarantee should be limited to start-ups and early stage businesses.
Where does it say the above in the Graham Review Recommendations Document?
In Paragraphs B5 and B6 on Page 83. In particular, the statement that: 'The maximum age limit should relate to the principal trading activity rather than the corporate form. Therefore, in the case of any business being transferred to a new corporate body, the principal trading activity should itself fall within the age limit in order for the application to be approved.'
Additionally, in responses it is usually helpful to reiterate the general line on the presentation of SFLG in the appropriate context, i.e. that it is a mechanism to enable a lender to make a loan to a business proposition that meets their normal commercial criteria except for the absence of the collateral that the lender would normally require to secure the loan. In other words, SFLG is not intended to be a 'scheme' that SMEs should explicitly set out to apply for, but instead is a 'tool' which participating lenders may consider using in appropriate circumstances to enable lending that would not otherwise be possible.
SFLG Collatoral
When applying to the SFLG Scheme, companies will need to provide the following information:
A Robust Business Plan
The Business Plan needs to support the application. At a minimum applicants should clearly describe:
- The Company/Type & Location of the Business
- Trading History
- Current & Target Clients
- Competition
- Sales Projections
- Reason For Borrowing Money & Resulting Business Growth
- Business Accounts
Whilst a balance sheet is acceptable for very young companies, maturing companies will need to submit a full set of accounts for at least 1 preceding year.
Director CV's
Each Director should submit a CV. These will be used to determine the level of experience within the Company.
Additional Documentation
Some institutions may require you to provide full details of your business and personal assets, although this is not always the case.
Call TAL Commercial Today For Assistance With Your Small Firms Loan Guarantee Application
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