Small Firms Loan Guarantee

Many small to medium-sized enterprises (SMEs) have viable business plans that need funding, for which a loan would be appropriate. However, some SMEs may be unable to obtain a conventional loan because they do not have assets to offer as security.

The Small Firms Loan Guarantee (SFLG) helps to overcome this by providing lenders with a government guarantee against default in certain circumstances.

The SFLG is a joint venture between the Department for Business, Enterprise and Regulatory Reform (BERR) and a number of participating lenders. Participating lenders administer the eligibility criteria and make all commercial decisions regarding borrowing.

SFLG Participating Lenders

The cost of the guarantee is two per cent per year on the outstanding amount of the loan, payable to BERR.

Changes to the SFLG took effect from 1 December 2005 to reflect the recommendations of the Graham Review. You can find out more about the Graham Review at the HM Treasury website.

As a result, the SFLG focuses on newer businesses. The main features and criteria of the scheme are:

A guarantee to the lender covering 75 per cent of the loan amount, for which the borrower pays a two per cent premium on the outstanding balance of the loan.
The ability to guarantee loans of up to £250,000 and with terms of up to ten years.
Availability to qualifying UK businesses with an annual turnover of up to £5.6 million and which are up to five years old. This is generally determined by the date the business came within the charge of corporation tax (for a company) or became liable to pay Class 2 National Insurance contributions (for a self-employed individual). In the case of a business transfer the five-year age limit applies to both the business making the acquisition and the business being acquired.

Five Year Business Age Eligibility Rule