New businesses will be able to raise more finance under the government’s small firms loan guarantee scheme after changes to the criteria from I December 2005.
The scheme guarantees loans from banks and other lenders to small businesses that have a viable business proposal but lack security. In another change to the rules, the business must be less than five years old.
If you have a business with a turnover up to £5.6 million, you can now borrow up to £250,000 for between two and ten years. You will be evaluated on the quality of your business case rather than your own individual borrowing history. The government is encouraging high street banks and a range of specialist lenders to make loans available under the scheme.
The scheme guarantees 75% of the loan. In return, as the borrower, you must pay the Department of Trade and Industry a premium of 2% a year on the outstanding amount of the loan. This is in addition to the interest you pay on the loan at a rate fixed by the lender. Many business activities are eligible but there are a number of trades excluded.
To proceed you have to apply to one of the approved lenders, which include all the major banks. Your business will need to satisfy the lender’s commercial criteria and demonstrate that it can repay the loan. You will need a clear business plan and financial forecasts to demonstrate the viability of your proposal and to identify your need for finance.
However few people are aware that the banks approach to this lending differs considerably and some will only enter into these schemes reluctantly. Also knowing which banks can “self-certify” the lending themselves can save a great deal of time and red tape!