smallbusiness.co.uk: Helping your business think big

A SmallBusiness.co.uk reader emailed me recently concerned about claims that the Small Firms Loan Guarantee (SFLG) scheme may become obselete following a huge fall in applications. He said that such claims were misleading as banks 'simply didn’t offer the SFLG' and asked why they are so averse to it.

Unfortunately, the number of successful applications has fallen, by almost half, as the Department for Business, Enterprise & Regulatory Reform showed in its annual report for the initiative. Applicants plummeted from 5,000 to 2,700 from 2005 to 2006, and the total amount borrowed more than halved from £422 million to £210 million. However, the reasons behind this are debatable.

The eligibility criteria for the SFLG changed substantially in 2005. The main difference was an increased focus on younger businesses, which precludes those with more than five years' trading history from applying. So I think it’s quite likely that this change has been the main cause of the reduction in applications and in lending.

Whether banks are reluctant to offer the SFLG is another matter. Banks are notoriously risk averse so it's unsurprising that they are cautious about lending money. Plus it’s now wholly down to them to decide whether someone will be accepted onto the scheme, so applying for this type of funding will be competitive. The best advice is to make sure that you have a solid business plan and that you’ve done your research into your proposed market.

A list of the participating lenders can be found on the DBERR website - click here. But if you've had trouble accessing the scheme, I’d be interested to hear from you. 

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