WITH sweeping changes to the Small Firms Loan Guarantee (SFLG) being introduced from December 1, businesses are being urged to examine the new eligibility criteria of the scheme so they don’t miss out.

Alison Watts, corporate finance partner at Armstrong Watson, looks at some of the implications.

The changes will open more opportunities for younger businesses and ensure that the process is improved to allow funds to be freed up when businesses need it.

The changes come after the Government accepted in full the recommendations set out in the Graham Review of the SFLG, which benchmarked the UK scheme against several international loan guarantee programmes. No less than 38 recommendations have helped to ensure the continuing relevance of the SFLG.

Minister for Competitiveness Barry Gardiner said that the Government hopes the changes will enable SMEs to build even more economic stability and overcome obstacles they face when raising debt finance.

The Small Firms Loan Guarantee is a vital element for helping businesses achieve ongoing success, making a real difference to those that find it difficult to obtain the necessary finance to grow. These changes will encourage more use of the SFLG by the widest range of eligible SMEs using a diverse range of lenders.

The new scheme will see a raft of changes that include:

Expansion of lending limits so a single £250,000 limit applies to all eligible Small and Medium Enterprises (SMEs);

Raising the turnover limit for all eligible SMEs to £5.6m;

Reserving resources to incentivise a range of new lenders to join the scheme;

Reserving resources to enable additional SFLG lending by banks that demonstrate a clear focus on high-growth SMEs; and

Removing the limit on the level of borrowing that individuals can be associated with (the so called “connected persons” rule), thus centering the lending decision on the quality of the business case, not the previous borrowing history of individuals involved with the business.

These changes are wide ranging and will offer a valuable opportunity to SMEs as the focus of the scheme will move to start-ups and young businesses. The modifications will see the availability of SFLG limited to those SMEs under five years old, which will provide a source of much needed funding as these are the businesses which have had least opportunity to build up a financial track record and assets against which to secure borrowing.

For more information about any of these changes and whether your business will benefit, please contact Alison Watts on 01228 591000.