smallbusiness.co.uk: Helping your business think big

The government's Small Firms Loan Guarantee (SFLG) service may become obsolete due to lack of uptake, it has been warned.

The scheme - which offers finance to entrepreneurs with a good business plan or SMEs less than five years old which cannot secure funding - has seen its applications dip massively in the last year.

Figures show that the number of loans fell by almost half, from 5,000 to 2,700 from 2005 to 2006 and the total amount borrowed also fell from £422 million to £210 million.

Commenting on the lack of applicants for the loans, Modwenna Rees-Mogg of Angel News says: 'This is a shocking fall. But I think it's down to the banks being more realistic and better at risk assessment.'

She adds: 'I don't think the scheme has a future in its current format, but the government must step up to the table and work out with banks, equity houses and big corporates what the country needs to do to support enterprise.'

Under the scheme the government provides a 75 per cent guarantee on a bank loan of up £250,000.