Small Firms Loans Guarantee

Starting up a new business requires considerable investment, and many businesses fail within only a few years due to a lack of available capital. It is therefore not surprising that lenders are very selective when deciding which firms are eligible for start-up business loans. However, there is help at hand; the government's Small Firms Loans Guarantee (SFLG) scheme makes it easier for firms to be granted bank loans and thus succeed in the market. This scheme is run jointly between the SLFG and a number of participating UK banks.

For successful applicants to the scheme, the government (specifically, the department for Business Enterprise and Regulatory Reform) takes on the majority of the risk involved by guaranteeing seventy-five percent of the loan amount should the borrower fail to make repayments. In exchange the borrower pays a fee equivalent to two percent of the loan balance.

Any small UK business with a credible business plan can apply for a loan, but there are a number of criteria which must be met, for example, your annual turnover must not exceed £5.6 million, your business should not be more than 5 years old, and you must have less than two hundred employees working for your organisation.

Depending on your circumstances, you may be required to offer another source of security to the lender, but this should be much more feasible since you only need to offer security on a maximum of twenty-five percent of the loan amount. On top of the fee charged by the scheme, you will also be liable to pay an agreed interest rate and any other applicable fees to the private lender (one of a number of registered banks who participate in the scheme). It is important to remember that despite the government guarantee, the lender remains under no obligation to grant you a loan.