The Small Firms Loan Guarantee (SFLG) is a government-backed initiative set up to ensure that small and medium sized enterprise (SME) businesses get access to the funding they need. Often SMEs don't have the required security or asset base that traditional lending sources require. This very often means they don't tick all the boxes lenders require and therefore don't gain access to much needed funds to grow and develop their business. In operation since 1981 the scheme has provided more than 88,000 loans and was comprehensively reviewed in December 2005. Far from finding that the scheme should be scrapped, which had been widely predicted, Teresa Graham who was responsible for the review emphasized the continued need for the scheme.

Graham made 38 recommendations to modernize and expand the scheme including much needed measures to reduce the red tape, making it easier for small firms to apply. Enhanced support for start-ups and a simplification of the eligibility criteria, including the removal of the employee cap and increase in turnover eligibility were also welcomed.

The Small Firms Loan operates in a similar manner to any other Business Term Loan except that security is provided by the Government and you pay a premium to obtain this security.

Ideal for:
Any business that has been trading for five years or less, with a turnover of less than £5.6 million wishing to borrow between £5,000 and £250,000 for up to ten years. It is particularly helpful to those young companies who don't have a trading record, large asset base or traditional security and have consequently been finding it difficult to secure finance.

Security requirements:
Businesses and business owners must first of all demonstrate to the lender that they have no security, either business or personal, to offer before they can become eligible for the scheme.

As it is a government-backed scheme this means that the government will secure the loan with the lender up to 75% of the loan amount and you will then pay a 2% premium on the outstanding balance of the loan for the privilege. You may however still have to provide security for the remaining 25% not secured by the government. If your business still can't provide this reduced security then your home may be used.