Small Firms Loan Guarantee Scheme (SFLG)

How might a Small Business Loan assist your business to grow?

The Small Firms Loan Guarantee scheme - SFLG - is in existence to enable small businesses with a viable business plan, but lacking security, to borrow money from approved lenders. The Small Firms Loan Guarantee scheme (SFLG) is a joint venture between the Department for Business, Enterprise and Regulatory Reform (BERR) and the 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 are not asked to provide personal guarantees, although any personal security will be requested by the bank prior to a SFLGS 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. Certain businesses are not eligible for the loan and companies with more than 200 employees are not eligible. Turnover in the year prior to the application must be below £5.6m for all businesses. In addition a premium on the amount outstanding is payable to 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 set at 2% per year on the outstanding balance for all new loans.

Changes may continue to be introduced by Government, and Strategy Corporate Finance are happy to advise on the current situation.

The importance of a carefully prepared business plan is often under-estimated. 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 and the banks; our consultants have wide experience in meeting these needs. A potential lender would expect to see information on:

• Management: key personnel, their experience, knowledge of the industry, age, education and training.
• Product or service: details of 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, risk factors, longer term plans.
• Financial Projection: projections of at least one year's future performance together with supporting assumptions and evidence (order books, customer enquiries). Projections should include profit and loss account, monthly cash flow projections, balance sheets and capital expenditure budget.
• Finance Required: 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 Corporate Finance has over the past two years submitted a high number of applications and at the present time have a success rate in excess of 92% in loans being granted. If you are seeking assistance with SFLG applications between £50,000 and £250,000 contact us today on 0845 838 0936 or drop us an email for more details on how we may be able to help. Strategy Consulting cannot offer assistance with applications under £50,000.

DTI Press Release on SFLG dated 5th October 2005

If you are looking for Equity Funding (e.g. Private Investors) instead of Debt Funding (e.g. loan with repayments) you may be interested in our Business Angels section.