Small Firms Loan Guarantee Scheme (SFLG)
 

As of March this year the old Small Firms Loan Guarantee Scheme was replaced by the Enterprise Finance Guarantee Scheme. Below are details of the old scheme for reference purposes only:

How might a Small Business Loan assist your business to grow?

The Small Firms Loan Guarantee scheme - SFLG - was in existence to enable small businesses with a viable business plan, but lacking security, to borrow money from approved lenders. The Small Firms Loan Guarantee scheme (SFLG) was a joint venture between the Department for Business, Enterprise and Regulatory Reform (BERR) and the approved lenders.

Changes in the scheme in March 2008 meant that more money is being made available by the Government, and loans up to £250,000 could be provided for companies with a trading record of more than 5 years.

The borrowers were not asked to provide personal guarantees, although any personal security was be requested by the bank prior to a SFLGS application being considered.

The Department for Business, Enterprise and Regulatory Reform provided 75% of the security to the bank on acceptance by them of the application. Certain businesses were not eligible for the loan and companies with more than 200 employees were not eligible. Turnover in the year prior to the application had to be below £5.6m for all businesses. In addition a premium on the amount outstanding was payable to BERR.

NOTE: Changes to the Small Firms Loan Guarantee scheme (SFLG) came into effect from 1 April 2003. The changes included:

• A single guarantee rate of 75% for all new loans.
• Sector exclusions removed for retailing, catering, coal, hairdressing and beauty parlours.
• The maximum turnover level for non-manufacturing businesses increased from £1.5m to 3m.
• The premium paid by the borrower set at 2% per year on the outstanding balance for all new loans.

The importance of a carefully prepared business plan is often under-estimated. The borrower must convince the potential lender that he or she has a viable business proposal. There is a need for a specialist funding plan to be created identifying closely the compliance with the requirements of the scheme and the banks; our consultants have wide experience in meeting these needs. A potential lender would expect to see information on:

• Management: key personnel, their experience, knowledge of the industry, age, education and training.
• Product or service: details of product or service on offer, state of product development, any follow-up products or services.
• Markets: description of the market and its size, customers, competitors, sales estimates and expected market penetration. Sales forecasts should be supported by hard evidence and research wherever possible. Also, an explanation of how the business will succeed in the market against competition.
• The business: when started, results to date, borrowing history, existing commitments, current bankers.
• Objectives and Strategy: business objectives, timetable and assumptions, risk factors, longer term plans.
• Financial Projection: projections of at least one year's future performance together with supporting assumptions and evidence (order books, customer enquiries). Projections should include profit and loss account, monthly cash flow projections, balance sheets and capital expenditure budget.
• Finance Required: total funding required based on projections, application of those funds, repayment assumptions. Purpose of finance, detailing capital expenditure.
• Security Available: what assets are available as security (personal assets as well as business assets). Also what assets have been used as security elsewhere.
• Management Information Systems: accounting systems used by the business, ability to produce regular management accounts.
• Principal Risks: most likely areas of risk and ability to cope with these. What happens in event of sickness or injury to key personnel?

We can only help with funding and advice for sums over £100,000. For enquiries below £100,000, please contact your nearest Business Link.

DTI Press Release on SFLG dated 5th October 2005

If you are looking for Equity Funding (e.g. Private Investors) instead of Debt Funding (e.g. loan with repayments) you may be interested in our Business Angels section.