smallbusiness.co.uk: Helping your business think big

We have been trying to pursuade banks to let us access a SFLG for nearly nine months. Of the four providers we have discussions with, there is no common ground on what constitutes a good application - and even amongst staff at the same bank there is a huge variance in understanding.

In summary we have found that this is a government guaranteed loan to help small businesses that cannot raise normal loans - and yet the banks risk assess it on exactly the same grounds as normal loans. This has put us in a circular argument of no loan before proven sustained profitability, at which point we would be able to get a normal loan anyway.

The Government should take this away from banks and run it as a loan scheme that actually encourages small business to grow and recognises the risks involved. I am not at all surprised the number has fallen, as it is virtually impossible to access.

Dr Ian Revie, CEO of a Activ4Life Healthcare Technologies, has sent me the following email. If anyone else has had a similar experience perhaps you could advise as to the course of action you eventually took:

'I have been informed that it is not possible to get an SFLG loan unless a business is selling product from day one. My company has a nine to twelve month development period prior to trading, during which time we have a funding gap. We have tried SFLG to be paid back through venture funding but this is unacceptable to them.'

I approached all the major banks with a business plan to expand my business after 3 years of trading. In each case I mentioned the SFLG but was met with either no knowledge of the scheme or a flat refusal to consider it. No wonder the usage is declining.

After reseaching numerous funding sources I felt the SFLG would possibly be the best route to follow. I approaching a major bank with my new business venture and was given a long winded refusal and no mention of the SFLG. Which banks do actually consider the scheme?

One of my clients recently asked his bank manager for details of the scheme only to be told that the Bank wouldn't even consider it. In effect they no longer support the scheme and their staff no longer consider it a part of their portfolio of services offered. If you are a small business with little or no history it is almost impossible to raise funds. It is very disheartening when you see every thing you have worked hard to get established start to fail through lack of funding.

There are alternatives to high street banks when considering an application for a Small Firms Loan Guarantee (SFLG). Venture Finance is an independent financier which has been authorised as an SFLG lender since 1999. I have it witnessed first hand the boost an injection of cash can give to businesses with no other means of securing finance, when combined with an invoice finance facility provided by Venture.

The change in eligibility for the SFLG - which was implemented after the Graham review in 2005 - is being blamed for halving the amount borrowed under the scheme from 2005 to 2006. This does not ring true for me as Venture has consistently lent between £3 and £4 million a year to a wide range of SMEs over the last three years. This clearly suggests that with the right support and information companies are as eager as ever to draw upon this form of finance.

Knowing how vital the SFLG has proved to many small companies, it would be a crying shame if the scheme was to diminish owing a supposed lack of interest by SMEs. Research Venture commissioned earlier this year suggested there has been a sharp decline in SME awareness of the SFLG over the past two years, from 51 per cent in 2005 to just 39 per cent in 2007. How can firms apply if they do not know it exists, or understand its benefits?

The financial community has a duty to protect the future of the SFLG and ensure businesses are fully aware of their funding options.

One of our panel of experts, Mark Endersby of Funding Solutions, has asked me to post the following response for him:

'Obviously I can’t speak on behalf of banks but I sense that there is a lot of paperwork involved for very little return. Bank managers are targeted on achieving certain income figures and as such they target their efforts accordingly.

The element that is not secured by the DBERR typically remains unsecured and banks may struggle to recover their funds in a failed situation.

Depending on what the loan is for there may be assets in the business that can be used as security. Even the assets you are looking to purchase can be considered.'