The Small Businesses Loan Guarantee Scheme
The idea behind the Small Business Loan Guarantee Scheme is to make loans available to small businesses which could not otherwise obtain such a loan because of lack of viable security to offer a commercial lender. The scheme is operated on behalf of the DTI's Small Business Service (SBS) by all the main clearing banks and allows loans up to £100,000 which the government guarantees 70% of or 85% if your business has been trading for more than two years. With effect from 1 April 2003, these two rates are being replaced by a single guarantee rate of 75%.
Prior to 1 April 2003, there were restrictions on what sort of business could be eligible but from 1 April the scheme will be expanded by removing sector exclusions including:
Retailing, Catering, Coal, Hairdressing & Beauty Parlours, House & Estate Agents, Libraries, Museums & Cultural Activities, Motor Vehicle Repair & Servicing, Steel and Travel Agents
Most small businesses are now eligible but there remain a number of excluded sectors, mostly those involved in finance such as banking, financial services, accountants , etc.
Loans are available for periods between 2 and 10 years on sums from £5,000 to £100,000 (£250,000 if your business has been trading for more than 2 years). The SBS guarantees 75% of the loan. In return for the guarantee, the borrower pays SBS a premium of 2% per year on the outstanding amount of the loan. The premium is reduced to 0.5% if the loan is taken at a fixed rate of interest. The commercial aspects of the loan are matters between the borrower and the lender. In other words, you have to convince the bank concerned that your business proposition is sound and would obtain finance except that there is no viable security for the lender.
To be eligible you must be a UK company with an annual turnover no more than £3m (£5m if you are a manufacturer).
To qualify for a loan you must have a formally documented business plan and convince the potential lender that you have a viable business proposal. Quality chartered accountants such as Practiser will be able to help as will local business support organisations such as Business Links (if your plan is relatively simple). In addition to having a business plan, the borrower must also convince the lender of a personal commitment to the business. Personal commitment (or lack of it) plays a crucial role in influencing the lender and it is not always measured in terms of finance. Each case is judged on individual merit.
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.
For loans of up to £30,000, the bank operating the scheme can make the final lending decision and simply arrange matters with DTI. For loans over £30,000, the banker reviews the case on normal lending criteria and then submits the case for review to the DTI who make the final decision. Normally, the DTI will go with the bankers recommendation but they will occasionally turn down an application.
If you would like to discuss raising finance under this scheme or generally, please contact Practiser by any of the means shown on this site.
For More Information Contact:
Practiser
PO Box 19518, Wemyss Bay, Scotland, PA18 6YF
Tel:
CompanyPhone
Fax: CompanyFAX
e-mail: info@practiser.co.uk