Small Firms Loan Guarantee Scheme

What is the Small Firms Loan Guarantee Scheme?

Small firms with viable business proposals which have tried and failed to obtain a conventional loan, either because of lack of security or business track record, or both, may be able to obtain finance under the Small Firms Loan Guarantee Scheme. By providing a government guarantee against default by borrowers, the Scheme enables high street banks and other financial bodies to lend between £5,000 and £250,000 to new and existing businesses. Between June 1981 and March 1999 over 66,000 loans have been guaranteed.

How the Small Firms Loan Guarantee Scheme works:

• it is intended to be in addition to normal commercial finance. It is not available if a conventional loan can be obtained;
• once a lender has decided that an applicant has a viable business proposal and is acceptable for a loan under the Scheme, the lender applies to the Department of Trade and Industry (DTI) for a guarantee;
• DTI issues the lender with a guarantee;
• in return for government support, a premium is payable by the borrower to the DTI;
• if the loan is for £30,000 or under, certain banks and other lenders can grant the application themselves without first referring it to the DTI's Small Firms Loan Guarantee Unit (the Small Loans Arrangement);

The Scheme is a joint venture between DTI and the lenders. All commercial decisions affecting borrowers are taken by the lenders. The Department cannot intervene.