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[S611]Small Firms Loan Guarantee Scheme

by John Courtney, Joh

The scheme will provide loans between £5000 and £100,000 for companies with a trading record of less than 2 years and this amount is increased to £250,000 for the older businesses. The DTI do not lend the money as they leave the commercial decision to the bankers.

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 DTI will provide 75% of the security to the bank on acceptance by them of the application. Certain businesses are not available for the loan and companies with more than 200 employees are not eligible. Turnover in the prior year to the application must be below £5m for manufacturing industries and £3m for all other businesses. In addition a premium on the amount outstanding is charged by the bank.

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 Consulting Ltd 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 and 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?

Common wisdom might suggest that a recession is not the best time to launch a new product or service, but small firms with a strong idea and a clear grasp of what their customers want could do well by branching out, says Andrew Gerrard, managing director of InTouch marketing and expert contributor to Marketing Donut, the new marketing website for small businesses.

?Just because there is a downturn doesn't mean that no one is buying,? says Gerrard. ?It's a question of assessing your market, identifying consumer demand and trying to match it. You might decide that now is the time to launch a value range, for example, or a more affordable version of a premium product you currently offer.?

The key to success, he stresses, is thorough planning and research. ?In a tighter market, it's likely that customers will evaluate a new product more critically, so they'll only buy if the product or service really meets a need. So, don't take any short cuts,? he warns. ?Better thinking and more honest evaluation should mean longer term success.?

So how can businesses spot an opportunity? Gerrard suggests looking at which of your current products or services are either doing well or declining, and using customer feedback and complaints to identify new areas.

Assessing what competitors are doing and keeping an eye on new types of financial support, such as grants, can also help inspire a new direction.

Once you've got an idea, it is essential to evaluate how it might work, he says. ?Talk to target customers, monitor reaction and don't be afraid to make changes if necessary.

?You don't want to find out that there is already something on offer which does the same job, or that it doesn't in fact offer any benefits to the consumer or the price you need to charge doesn't reflect the price customers are willing to pay,? explains Gerrard.

While launching a new product is never cheap, one advantage of the current downturn is that small firms should be able to negotiate good rates on advertising space and airtime. ?It's largely a buyer's market, so firms should be able to get much better value out of their marketing budget,? says Gerrard.

Article Source : Pg. 157

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Both John Courtney & Tom Whitney are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.

John Courtney has sinced written about articles on various topics from Business Grants, Finances and SEO Search Engine Optimization. . John Courtney's top article generates over 1300 views. to your Favourites.

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