Sharper Focus For The Small Firms Loan Guarantee Scheme (SFLG)

Now that sweeping changes to the Small Firms Loan Guarantee scheme (SFLG) have been introduced, businesses are being urged to examine the new eligibility criteria of the scheme.

The changes come after the Government accepted in full the recommendations set out in the Graham Review of the SFLG, which benchmarked the UK scheme against several international loan guarantee programmes and set out 38 recommendations to ensure the continuing relevance of the SFLG.

Competitiveness Minister Barry Gardiner said:

"From 1 December 2005 we will be implementing the recommendations from the Graham Review. This will further enable us to build on the economic stability afforded to us by small and medium-sized enterprises and help them overcome the obstacles they face when raising debt finance.

"The Small Firms Loan Guarantee scheme is a vital element for helping businesses achieve ongoing success, making a real difference to those that find it difficult to obtain the necessary finance to grow."
"These changes will encourage use of the SFLG by as wide a range of eligible SMEs as possible and through as diverse a range of lenders."

• Expansion of lending limits so a single £250,000 limit applies to all eligible Small and Medium Enterprises (SMEs)
• Raising the turnover limit for all eligible SMEs to £5.6m
• Reserving resources to incentivise a range of new lenders to join the scheme
• Reserving resources to enable additional SFLG lending by banks that demonstrate a clear focus on high-growth SMEs
• Removing the limit on the level of borrowing that individuals can be associated with (the so called "connected persons" rule), thus centering the lending decision on the quality of the business case, not the previous borrowing history of individuals involved with the business

Along with implementation of these far reaching changes, the focus of the scheme will move to start-ups and young businesses. This will see the availability of SFLG limited to those SMEs under five years old, as these are the businesses which have had least opportunity to build up a financial track record and assets against which to secure borrowing.

The Department of Trade and Industry (DTI) has now been replaced by the Department for Business, Enterprise and Regulatory Reform (BERR). The BERR are now responsible for the SFLG scheme, for further information on the SFLG and for a listing of approved lenders, visit the BERR's SFLG web page.

Notes to editors:

1. SFLG, originally administered by the DTI's Small Business Service (SBS), was launched in 1981 to help SMEs with viable business propositions, but without sufficient collateral on which to secure a loan, to access debt finance.
2. SFLG enables all the leading high street banks and a range of other specialist lenders to lend to small businesses with viable business propositions that would not otherwise be able to borrow because they lack the security the lender requires. The SFLG covers 75 per cent of the lenders exposure, with the borrower paying two per cent premium to the BERR.
3. Loans are currently available for periods of between two and ten years on sums up to £250,000. The SFLG guarantees 75 per cent of the loan. In return for the guarantee, the borrower pays the BERR a premium of 2 per cent a year on the outstanding amount of the loan. The commercial aspects of the loan are matters between the borrower and the lender.
4. Over 100,000 guarantees have been issued since the scheme started in 1981, enabling around £4bn of lending to over 90,000 businesses.
5. For the purposes of eligibility for the SFLG, an SME is defined according to turnover, with current annual limits of £5.6m.
6. In October 2004 the Government accepted in full the recommendations of the Graham Review of the SFLG, which benchmarked the UK scheme against several international loan guarantee programmes and set out 38 recommendations for the future of the SFLG.
7. The full report of the Graham Review can be viewed on the HM Treasury web site.

© Crown Copyright 2005

Teresa Graham provides an outline of her review of the Small Firms Loan Guarantee Scheme.

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