smallbusiness.co.uk: Helping your business think big

Opportunities for small firms and start-ups to access finance will be enhanced following a review of the Small Firms Loan Guarantee Scheme (SFLGS).

The SFLGS guarantees loans from banks and other financial institutions for small firms that have tried and failed to get a conventional loan because of lack of security.

Recommendations from the review include an extension of the current lending limit of £100,000 (£250,000 for a business that has been trading for three years) to £250,000 per business for all eligible businesses. In addition, the turnover limit for suitable firms will also be raised from £3 million (£5 million for manufacturers) to £5.6 million.

Teresa Graham, deputy chair of the Government’s Better Regulation Task Force, who carried out the review, commented that although the scheme at present was far from perfect, there was a definite need for it to remain.

“The SFLGS might not be massive, but it is important. Last year, 6,000 loans were made and over £400 million lent. Though the debt market for small and medium-sized enterprises (SMEs) has improved, I’ve found that some SMEs – particularly start-ups and those with growth ambitions – continue to find a lack of collateral a barrier to accessing debt finance. That is why I am recommending that the scheme continues to operate,” explained Graham.

In order to focus the SFLGS on start-ups and younger busineses, a maximum age limit of three years full trading will be introduced. In addition banks, which have in the past been criticised for their lack of support for the scheme, will be empowered to administer it.

“I admit that SFLG is not the most popular scheme within the banking community, but there is a lot of bureaucracy attached, so it’s hardly surprising. Whatever I’ve been able to scrap, I have scrapped, and where I can simplify, I have done so. And there is evidence that banks are using it in a more consistent way,” believes Graham.

However, Graham admitted that SFLG is an expensive scheme to run, with no less than 30% of those applying defaulting on their loans.

No date has yet been set for the changes to come into place, but Graham added that “discussions with lenders will be imminent and I hope the changes take place soon.”

For more on the SFLGS, go to www.sbs.gov.uk.

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