The Government Enterprise Finance Guarantee Scheme
November 2009
I am sure many of you will remember the Small Firms Loan Guarantee Scheme (SFLGS) which enabled small businesses with a viable business plan, but lacking security, to borrow money from approved lenders – i.e. banks. I also expect you will know that this has long since been closed for business.
I wonder, though, how many of you know that it is back with a new name and for a limited time only. The Enterprise Finance Guarantee Scheme (EFGS) began in January 2009 and offers government-guaranteed loans to small businesses and, at the time of writing, will be available until March 2010.
The key features are summarised as follows:
- Flexible, general purpose finance
- The government guarantees part of the loan, enabling banks to lend when their usual criteria otherwise probably wouldn’t and to offer good interest rates as well
- You have a choice of repayment options (e.g. monthly, quarterly, six-monthly or yearly)
- You can take a capital repayment holiday (you will still have to pay the interest)
- A choice of interest rate structures – i.e. variable or fixed
- Borrow between £25,000 and £1,000,000
- Repay over up to 10 years
The main high street banks participate in the scheme and you should ask your bank to explain exactly what they offer. The devil is in the detail. There are the inevitable arrangement fees. In particular, there is a “guarantee premium” payable to the government of 2% of the outstanding balance each year of the loan. This is discounted to 1.5% for 2009.
If you regularly have and overdraft balance, or even if you don’t, perhaps you should consider the EFGS to convert your overdraft to a loan as, even with the fees and premiums, it may well be less expensive than your existing facility. Your bank may even offer to retain an overdraft facility – albeit probably smaller – to help you manage fluctuations in your working capital.
On balance, worth considering I think and the banks assure us that the application process is simple and straightforward and you can expect a prompt decision.
Return to category: Newsletter: Brilliant News - November 2009