Small Firms Loan Guarantee Scheme (SFLG)

Trolltech Ltd celebrate the approval of a SFLG with Bank of Scotland gained with the help of Strategy Consulting

The Small Firms Loan Guarantee scheme - SFLG - enables small businesses with a viable business plan, but lacking security, to borrow money from approved lenders. The Small Firms Loan Guarantee scheme (SFLG) used to be a joint venture between the Department of Trade and Industry (DTI) and a number of well known, approved lenders. The DTI no longer exists so these government small business loans are now a joint venture between the Department for Business, Enterprise and Regulatory Reform (BERR) and the same approved lenders.

Changes in the scheme in March 2008 mean that more money is being made available by the Government, and loans up to £250,000 can now be provided for companies with a trading record of more than 5 years. Strategy Consulting can assist with obtaining the larger loans in the £50,000-£250,000 range. Smaller loans of less than £50,000 we advise clients to talk directly with their own bank.

The borrowers may not be required to provide personal guarantees although any personal security will be requested by the bank prior to a Small Firms Loan Guarantee scheme application being considered. The Department for Business, Enterprise and Regulatory Reform will provide 75% of the security to the bank on acceptance by them of the application. The decision to approve the application is a commercial decision taken by the lender as they are taking the risk on the remaining 25% of the loan. Certain businesses are not eligible for the loan and companies with more than 200 employees are also not eligible. Turnover in the prior year to the application must be below £5.6m for all businesses. In addition a premium on the amount outstanding is payable to the BERR.

NOTE: Changes to the Small Firms Loan Guarantee scheme (SFLG) came into effect from 1 April 2003 meaning that more businesses may be eligible. The changes include:

• A single guarantee rate of 75% for all new loans
• Sector exclusions removed for retailing, catering, coal, hairdressing and beauty parlours
• The maximum turnover level for non-manufacturing businesses increased from £1.5m to £3m
• The premium paid by the borrower is set at 2% per year on the outstanding balance for all new loans

Changes may continue to be introduced by the Government and Strategy Consulting Limited are happy to advise interested parties on the current situation.

The importance of a carefully prepared business plan is often under-estimated when applying under the Small Firms Loan Guarantee scheme. The borrower must convince the potential lender that he or she has a viable business proposal.

There is a need for a specialist funding plan to be created, identifying closely the compliance with the requirements of the scheme. The participating banks and our consultants have wide experience in meeting these needs. A potential lender would expect to see information on:

• Management: key personnel, knowledge of the industry, their experience, age, education and training
• Product or Service: details of the product or service on offer, state of product development, any follow-up products or services
• Markets: description of the market and its size, customers, competitors, sales estimates and expected market penetration. Sales forecasts should be supported by hard evidence and research wherever possible. Also an explanation of how the business will succeed in the market against competition
• The Business: when started, results to date, borrowing history, existing commitments, current bankers
• Objectives and Strategy: business objectives, timetable and assumptions, longer term plans, risk factors
• Financial Projection: projections of at least one year's future performance together with supporting assumptions and evidence (customer enquiries, order books). Projections should include profit and loss account, monthly cash flow projections, capital expenditure budget and balance sheets
• Finance Required: details of funding provided to date, total funding required based on projections, application of those funds, repayment assumptions. Purpose of finance, detailing capital expenditure
• Security Available: what assets are available as security (personal assets as well as business assets). Also what assets have been used as security elsewhere
• Management Information Systems: accounting systems used by the business, ability to produce regular management accounts
• Principal Risks: most likely areas of risk and ability to cope with these. What happens in event of sickness or injury to key personnel

Strategy Consulting Limited look to add value to the application process for government small business loans by preparing the funding proposition and working closely with the client. Our consultants provide guidance throughout the process from their initial meeting with the management team to completion.

Once the funding proposition has been agreed with the client, our consultants will submit the application to appropriate lenders and they will attend the banking meetings with the clients where our consultants can assist with negotiations.

Our clients tend to be looking for funding in the range of £50,000 to £250,000.

Strategy Consulting Limited has over the past two years submitted a high number of applications to the Small Firms Loan Guarantee scheme and at the present time have a success rate in excess of 92% in loans being granted.

We can only help with funding and advice for sums over £50,000. For enquiries below £50,000, please contact your nearest Business Link.

DTI Press Release on SFLG dated 5th October 2005

More information? Ask us here.

IMPORTANT NOTE: We do not provide any financial advice of any nature and we only operate as introducers (not as brokers) to regulated companies and only for amounts in excess of £25,000.