Contact Us
Business Advice Bureau (Yorkshire) Ltd
PO BOX 102
LEEDS
LS8 9AY
0845 0523 700
Unsecured Loans for Leasehold and Building Improvement
Loan Guarantee Schemes
•
Loan guarantee schemes enable small business to access loans for a business
that is unable to obtain conventional finance because of a lack of security.
•
A business is eligible if it is involved in a commercial activity, has a
viable business proposal and will be able to repay the loan.
•
In all cases the business remains liable for the whole amount of the outstanding
loan.
•
Loan Rates are negotiated between the lender and the borrower however the
lender’s decision will be based on the assessment of the risk
•
Most loans require an equity contribution from the owner and funds previously
invested in the business can also be considered as counting towards fulfillment
of this requirement.
•
Funds previously invested in the business can also be considered as the cash
contribution.
•
The amount of the loan to which a business is entitled may be restricted
by European rules regarding State Aid. When applying for a loan a business
must list any other loans, awards or grants received in the last three years.
•
There are many loan guarantee schemes most of them are catering for niche
areas, such as coalfield redevelopment, manufacturing redevelopments, inner
city regeneration or specific business sector IT, Biotech, Food manufacturing
etc.
•
The largest and the only national scheme is the DTI’s Small Firms Loan
Guarantee Scheme.
o Since the scheme was launched in 1981, over 100,000 loans to more than
90,000 businesses have been guaranteed, worth approximately £4 billion
in total. Companies like The Body Shop & Waterstones benefited in their
early years.
o This is the most comprehensive in its applicability and offers the largest
guarantee – up to 75% of £250,000.
o The Small Firms Loan Guarantee scheme (SFLG) is a joint venture between
the DTI and the approved lenders.
o SFLG -has been in existence to enable small businesses with a viable business
plan, but lacking security, to borrow money from approved lenders.
o The DTI do not lend the money as they leave the commercial decision to
the bankers.
o 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.
o The DTI will provide 75% of the security to the bank on acceptance by them
of the application.
o Certain businesses are not eligible for the loan and companies with more
than 200 employees are not eligible.
o Turnover in the prior year to the application must be below £5.6m
for all businesses.
o In addition a premium on the amount outstanding is payable to the DT – currently
2% of the loan amount outstanding.
o The business must be less than five years old.
o Loans are available for 2 - 10 years.
o Adverse credit history is taken into consideration by lenders and businesses
with non-conforming credit history will find it difficult to raise money
under this process without being able to offer asset security.
o It is a condition of the loan that the business must provide financial
management information on a regular basis.
• The balances of the schemes are operated by either public funded
organizations or quangos such as the regional development agencies, enterprise
agencies, local authorities, business links, chambers of commerce etc.
o Unlike the SFLG these tend to financed and operated by the actual organization
offering the loan.
o These tend to range in the value of £1,000 to £25,000.
o Some of the smaller loans maybe offered interest free or at a discounted
rate of interest.
o Some of these schemes are specifically tailored towards businesses with
adverse credit history and other limiting factors which restrict their appeal
to the larger and more mainstream schemes – these smaller schemes act
and should be approached as lenders of last resort.
o The reporting requirements for these smaller loans are less onerous than
the SFLGS.
•
Each of these schemes has differing eligibility criteria’s and application
processes. These are government scheme, so there are loads of rules! We know
them, and can help you through.
o One thing common with the vast majority of the schemes is that they require
a business plan, which includes financial projections illustrating the viability
of the proposal.
•
They principally only kick in if all other funding sources have been exhausted
i.e. normal high street banks – in some cases you need to provide actual
documentary evidence of this.