Loan scheme to target start-ups

A review of the Small Firms Loan Guarantee Scheme has led to changes in the eligibility criteria, which are intended to benefit start-ups and new businesses.

The SFLGS was originally set up in 1981 to help small businesses lacking collateral but with viable business propositions access debt finance to help them grow. In 2003, the Graham Review made several recommendations to improve the scheme, having compared it to successful foreign equivalent schemes.

‘From 1 December 2005 we will be implementing the recommendations from the Graham Review,’ explained Competitiveness Minister Barry Gardiner. ‘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.’

A major change is to limit the scheme to businesses under five years old as they will have had the least opportunity to develop a financial track record.

Currently, businesses 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, fully documented applications must be with lenders by 28 October 2005.

Other changes to the scheme include:

  • Expansion of lending limits so a single £250,000 limit applies to all eligible 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 focusing the lending decision on the quality of the business case, not the previous borrowing history of individuals involved with the business

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Small Business Loans