The Small Firms Loan Guarantee Scheme is a government-run scheme offered by the Small Business Service (SBS), designed to help firms with viable business plans who have failed to get a loan because of a lack of security.
The SBS will guarantee loans of between £5,000 and £100,000 (£250,000 if your business has been trading for more than two years) over a period of two to ten years. SBS will guarantee 75% of the loan in exchange for a premium of 2% of the outstanding amount of the loan. Eligible companies must be UK based, have a turnover of up to £5.6m and be up to five years old.
Only certain lenders participate in the scheme and there are restrictions that could exclude certain businesses. For more information and a list of participating lenders, contact the SBS Loan Guarantee Unit on 0114 259 7308/9 or email firstname.lastname@example.org
It is this requirement for security that many small businesses believe holds them back. The Institute of Directors found in a 1999 survey of its members that the need for collateral was a problem particularly for high tech companies. The Bank of England also is studying this area and working with banks on trying to provide better financing solutions.
Andrew Foyle, chief executive officer of Argo Interactive, explained that when he decided to set up a software company he avoided the banks. “I knew from bitter experience that trying to approach a bank as an intangible asset company would be very, very difficult.”
Technology companies tend not to fit into the conventional business model used by banks to decide on funding. In addition, they are unlikely to have the security required to borrow. A local small business manager, particularly in an area like Chichester, is more likely to deal with hairdressers, shops, farmers or other small businesses rather than technology businesses, added Foyle.
However, banks are trying to remedy their bad image with technology companies. Most of the high street banks have set up specialist units to deal with this sector. Natwest, for example, offers a number of business appraisal services from its innovation and growth unit. The business appraisal service can cost between £1,000 and £4,000 and offers input from independent technology and marketing consultants to look at your business plan for specialist help in this sector.