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Small Firms Loan Guarantee Scheme (SFLG)
The Small Firms Loan Guarantee scheme - SFLG -has been 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 DTI and the approved lenders.
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?
About the author:
John Courtney AIMC, MABS, MInstDis, is the managing director of
Strategy Consulting Limited
(http://www.strategyconsultinglimited.co.uk). Having trained at
The Academy of Business Strategy, and is an associate of the
Institute of Management Consultancy and a member of the
Institute of Directors, he is also a visiting lecturer on the
MBA course at Cranfield University School of Management and a
Judge in The National Business Awards
Written by: John Courtney
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