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Five Year Business Age Eligibility Rule

Q&A on the Five Year Business Age Eligibility rule

In summary, the 'Five Year rule' is the requirement that a business must have been trading for no more than five years to be eligible for an SFLG guaranteed loan.

The main issues raised regarding the rule have been as follows:

How is the 'Five Year' period defined?

By reference to the date of coming within the charge of Corporation Tax (for a company) or becoming liable to pay Class 2 National Insurance Contributions (for a self-employed individual). The participating lenders address any more detailed queries in relation to this point or any of the other eligibility criteria once they have established that the use of SFLG would appear to be appropriate.

What if the transaction involves the acquisition of another business?

Then the Five Year rule applies to both the business making the acquisition and the business being acquired.

What is the justification for introducing the Five Year rule?

The Graham Review recognised and ministers agreed that the government has an interest in using its limited resources to the best effect for UK productivity. The Review therefore recommended that, as start-ups and young businesses face greater difficulty in accessing finance than established businesses (primarily because they often have an unproven business concept, have had least opportunity to build up a financial track record and/or assets against which to secure borrowing), eligibility for SFLG should be limited to start-ups and early stage businesses.

Where does it say the above in the Graham Review Recommendations Document?

In Paragraphs B5 and B6 on Page 83. In particular, the statement that: 'The maximum age limit should relate to the principal trading activity rather than the corporate form. Therefore, in the case of any business being transferred to a new corporate body, the principal trading activity should itself fall within the age limit in order for the application to be approved.'

Additionally, in responses it is usually helpful to reiterate the general line on the presentation of SFLG in the appropriate context, i.e. that it is a mechanism to enable a lender to make a loan to a business proposition that meets their normal commercial criteria except for the absence of the collateral that the lender would normally require to secure the loan. In other words, SFLG is not intended to be a 'scheme' that SMEs should explicitly set out to apply for, but instead is a 'tool' which participating lenders may consider using in appropriate circumstances to enable lending that would not otherwise be possible.