The Small Firms Loan Guarantee (SFLG) is a joint venture between the Department of Trade and Industry (DTI), and participating lenders with the aim of fostering the growth of small to medium-sized businesses in the UK. Without adequate capital, small businesses cannot grow, and as they do not have the required assets as security, they cannot access conventional loans. The Small Firms Loan Guarantee is designed to overcome this.

Features of the Small Firms Loan Guarantee Scheme

•To take advantage of the SFLG loan, your business must meet the following criteria:

oFor manufacturing businesses, the annual turnover should be less than £5.6 million in a financial year. For non-manufacturing businesses, the annual turnover should be less than £3 million.

oYour business should have a consistent trading existence of less than five years. For a company, this is typically calculated from the date the business started paying corporation tax. For the self-employed, the date the business became liable to pay class 2 National Insurance contributions. For business transfer, the five-year age limit is applicable to both the business being acquired and the business making the acquisition.

oYour business should belong to an acceptable industry sector. Unacceptable industry sectors are Agriculture and Horticulture; Betting and Gambling; Commission Agents; Education; Fisheries; Forestry; Medical Services; Real Estate and Postal Services. Changes in the SFLG have come into effect from 1 April 2003, where sector exclusions have been removed for beauty parlors, catering, coal, hairdressing, and retailing.

•To proceed with the Small Firms Loan Guarantee You have to apply in the prescribed format of the lender. Your application, which is subject to normal underwriting criteria, is processed and, once approved, the loan is sanctioned. Thereafter, the participating lender directly transfers the funds to you.

•DTI secures 75% of the loan amount by giving a government guarantee to the participating lender for which you have to pay a 2% annual premium on the outstanding balance of the loan, payable to the DTI.

•SFLG loans of up to £250,000 may be sanctioned. Different participating lenders sanction different amounts, but most of them offer loans between £25,001 and £250,000 over 2 to 5 years.

•Since the participating lender takes the risk to the order of 25% of the loan, the decision to approve or reject the application, lies with the lender. Most lenders require documented evidence regarding the viability of your business. For example, the management, the product or service, the markets, the financial health of the business, the objectives and strategies, the financial projections, the finance required, the security available, the accounting systems, and the principal risks.

•The documents to be submitted along with your application are your latest audited or management accounts, your business plan, and your financial forecasts. Lenders may require additional documents. Your application is processed by the lender with the DTI. The necessary paperwork is forwarded to you by the lender. Upon approval by the DTI, and the lender, the funds under SFLG are transferred to you.