Scheme Features & Criteria

Many small to medium sized enterprises (SMEs) have viable business plans that need funding, for which a loan would be appropriate. Unfortunately, some of these businesses will fail to secure a conventional loan because they do not have sufficient assets or security to offer the Lender.

The Small Firms Loan Guarantee Scheme was designed to overcome this problem, by providing Lenders with a government guarantee against default in certain circumstances.

The Scheme is a joint venture between the Department for Business, Enterprise and Regulatory Reform (BERR) and a number of approved participating Lenders. The Lenders make all the commercial decisions regarding the borrowing and administer the eligibility criteria of the scheme. The Government does not make any lending decisions against individual applications under the scheme.

It should be noted that the scheme operates as a tool for the Lender to use at their discretion alongside their normal commercial lending practices, rather than a separate scheme for which the borrowing business sets out to apply.

In addition to the commercial terms agreed between the borrower and the Lender, the borrower must also pay a premium of 2% per annum on the outstanding amount of the loan. This is payable quarterly to BERR as the cost for providing the guarantee.

The Scheme has been available to UK businesses since its introduction by the government in 1981, although there have been several changes to the features and eligibility criteria over the years. The most recent changes took effect from 1st December 2005 to reflect the recommendations of the Graham Review.

One other significant change has been the recent (April 2008) abolition of the “5 year rule”. It used to be the case that a business that had been trading for longer than 5 years would automatically be excluded from applying under the scheme. This is not now the case. For the first time, the scheme can now be used for businesses that have been trading for over 5 years.

The main features and criteria of the scheme are;

The government provides a guarantee to the Lender covering 75% of the loan amount.
The borrower pays a 2% premium on the outstanding balance to BERR for providing the guarantee.
Loans are available from £5,000 - £250,000.
Repayment periods of between 2 and 10 years.
Available to qualifying UK businesses with an annual turnover of up to £5.6million.
Most business sectors are eligible, although there are some exclusions, principally in the transport, agriculture, coal and steel sectors.
Most business purposes will qualify, again with some exclusions, principally in relation to the financing of export orders and the replacement of existing finance facilities.

Important Note;

It is imperative that you have a solid, well structured and viable Business Plan to present to Lenders. This should provide a detailed overview of the business proposals and have full Cash Flow, Profit & Loss and Balance Sheet Projections covering the proposed term of the loan.

Please see the following guidance notes on how to write a Business Plan; “How to Write a Winning Business Plan”

You can read the last 2 SFLG Annual Reports to Parliament here. The latest was published on 1st August 2008 and details the impact of the scheme over the last year;