DTi Press Release 05-Oct-2005 on SFLG

Sharper focus for Small Firm Loan Guarantee - New criteria for businesses to take effect in December 2005

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.

For more details of how Strategy Consulting could asset you with an application to the SFLG scheme of between £50,000 and £250,000 see our Small Firms Loan Guarantee page.

Competitiveness Minister Barry Gardiner said:

"From 1 December 2005 we will be implementing the recommendations from the Graham Review. This will further enable us to build on the economic stability afforded to us by small and medium-sized enterprises and help them overcome the obstacles they face when raising debt finance.

"The Small Firms Loan Guarantee is a vital element for helping businesses achieve ongoing success, making a real difference to those that find it difficult to obtain the necessary finance to grow.

"These changes will encourage use of the SFLG by as wide a range of eligible SMEs as possible and through as diverse a range of lenders."

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.
• Removing the limit on the level of borrowing that individuals can be associated with (the so called "connected persons" rule), thus centring 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 the DTI's Small Firms Loan Guarantee web page.

Notes to editors:

• SFLG, currently administered by the DTI's Small Business Service (SBS), was launched in 1981 to help SMEs with viable business propositions, but without sufficient collateral on which to secure a loan, to access debt finance.
• SFLG enables all the leading high street banks and a range of other specialist lenders to lend to small businesses with viable business propositions that would not otherwise be able to borrow because they lack the security the lender requires. The SFLG covers 75 per cent of the lenders exposure, with the borrower paying two per cent premium to the Government.
• Loans are currently available for periods of between two and ten years on sums from £5,000 to £100,000 (or £250,000 if the business has been trading for more than two years). A single ceiling of £250,000 will apply in future. The SFLG guarantees 75 per cent of the loan. In return for the guarantee, the borrower pays the DTI a premium of 2 per cent a year on the outstanding amount of the loan. The commercial aspects of the loan are matters between the borrower and the lender.
• Over 100,000 guarantees have been issued since the scheme started in 1981, enabling around £4bn of lending to over 90,000 businesses.
• For the purposes of eligibility for the SFLG, an SME is defined according to turnover, with current annual limits of £5m for manufacturing and £3m for other eligible businesses. In future an annual limit of £5.6m will apply to all eligible businesses, or to the group if a business is part of a group.
• In October 2004 the Government accepted in full the recommendations of the Graham Review of the SFLG, which benchmarked the UK scheme against several international loan guarantee programmes and set out 38 recommendations for the future of the SFLG.
• The full report of the Graham Review can be viewed on the HM Treasury website.

© Crown Copyright 2005

Teresa Graham outlines her review of the Small Firms Loan Guarantee Scheme

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