The Small Firms loan Guarantee Scheme

The small firms loan guarantee scheme was designed for small businesses who have tried and failed to obtain a conventional loan from a bank or other lending organisation. This is normally because the business owner has a lack of security or what lenders consider to be a bad business track record, or both. Such individuals may be able to qualify for finance under the Small Firms Loan Guarantee Scheme.

The government provides a guarantee for the loan to the lending institution against the borrower defaulting on the loan repayments. By using this type of mechanism, the government stimulates the economy and enables high street banks and other financial bodies to lend between £5,000 and £250,000 to new and existing businesses.

Loans are available for up to ten years and on sums from £5,000 to £100,000 (£250,000 if your business has been trading for more than two years). The Small firms loan guarantee scheme guarantees 75% of the loan..

To be eligible, you must be a UK company with an annual turnover of no more than £3m (£5m if you are a manufacturer). Many business activities are eligible but there are a number of exclusions. Business loans are available for most business purposes although there are some restrictions.

How the scheme works

• The small firms loan guarantee scheme is intended to be a supplement and to augment normal commercial finance. It is unavailable if a normal conventional loan is obtainable.

• In order to obtain a small firms loan guarantee scheme loan, an applicant must submit a viable business proposal. The proposal should include a properly prepared business plan and details of the remainder of the financing will be raised.

• If a participating loan guarantee scheme lender determines that an applicant has a viable business proposal and qualifies for a loan under the scheme, the lender applies to the Department of Trade and Industry for a guarantee.

• Upon receipt of the completed application submitted to the Department of Trade and Industry by the lender and subject to successful processing by the Department of Trade and Industry, the Department of Trade and Industry will issue the lender a guarantee for the loan.

• As a consequence of obtaining support from the government, the Department of Trade and Industry will require a premium to be paid to it  by the borrower. In addition to any interest charges applied by the lending scheme member, the borrower pays the Department of Trade and Industry a premium of 2% a year on the outstanding amount of the loan.

• if the loan is for £30,000 or under, certain banks and other lenders can grant the application themselves without first referring it to the Department of Trade and Industry.

The Scheme is a joint venture between Department of Trade and Industry and the participating scheme lenders. On the date this article was written, the following scheme members were listed on the web:

• Airdrie Savings Bank
• Bank of Baroda
• Bank of Ireland (NI only)
• Bank of Scotland plc
• Barclays Bank plc
• Bibby Financial Services
• Doncaster Business Advice Centre (Donbac)
• Clydesdale Bank plc
• Euro Sales Finance PLC
• First Trust Bank (NI only)
• General Asset Management
• HSBC Bank plc
• Lloyds TSB Group plc
• National Westminster Bank plc
• Northern Bank (NI only)
• Northern Enterprise Ltd
• One London Ltd
• State Securities plc
• Triodos Bank
• The Co-operative Bank plc
• The Enterprise Fund
• The Royal Bank of Scotland
• UK Steel Enterprise Ltd
• Ulster Bank Ltd (NI only)
• Venture Finance plc
• Yorkshire Bank plc

For the most up to date list of scheme participants, please visit the following web site.
http://www.dti.gov.uk/bbf/small-business/info-business-owners/access-to-finance/Small%20Firms%20Loan%20Guarantee/page37617.html

According to our research, the small firms loan guarantee scheme loans are available if the borrower runs or is about to run an “eligible business” and the “eligible activity” is an approved activities and the loan itself is required for “eligible purposes”.