What Is a Small Firms Loan Guarantee?

Starting your own business will be one of the most exciting and challenging things you will ever do, but many small businesses run into problems right from the start.

When starting up your new business, you will need to have enough money to fund the initial set up, as well as the initial running costs. Many people rely on savings they may have put aside, family or even friends to help get them through the start-up period. However, for those who have exhausted all other possibilities, there was the option of applying for a Small Firms Loan Guarantee, although this scheme has since closed.

The Small Firms Loan Guarantee scheme was designed specifically for small businesses that have a viable business plan and was originally set up as a joint venture between the Government and a selection of lenders.

This has since been changed: the scheme was replaced by the Enterprise Finance Guarantee in 2009, which itself closed in 2021. Government backed loan guarantees are now provided through the Growth Guarantee Scheme, run by the British Business Bank, and current details should be checked on GOV.UK.

A Helping Hand

In the 2008 Budget, the Government pledged more money for companies that have been trading for more than five years. Loans of up to £250,000 could be provided to these companies, providing there is a record of the length of time they have been trading for.

This scheme was set out to help those who are unable to obtain a conventional loan usually due to not having available assets to offer as security. The Small Firms Loan Guarantee scheme helped by providing lenders with a government backed guarantee in case of default.

Once your lender has approved the application, the Government would provide up to 75 per cent of the security. However, you must bear in mind that the decision as to whether to lend to you, or not, came from the lender as it was them who were providing the remaining 25 per cent.

There is a wide range of qualifying criteria that you will need to be aware of when applying for funding through the scheme. Eligibility was generally restricted to businesses that had been operating for less than five years and those with a turn over of less than £5.6 million per year. Eligibility rules for the current Growth Guarantee Scheme are different and should be checked on GOV.UK.

However, certain businesses were not eligible for the loan, as were those that employed over 200 members of staff.

Grant Eligibility Finder

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Preparing to Apply

The most important thing when it comes to applying for a government backed loan guarantee is to carefully prepare you business plan because it is this that will ultimately convince the lenders that your business is a viable one.

If you have adverse credit you may still be able to apply for a guaranteed loan, however, lenders will check that any outstanding issues have been satisfied and that your business is financially healthy and provides suitable means of repayment.

When the time comes to actually apply for to the scheme it is important that you check what is being offered. Most of the major high-street business banks, such as Barclays, Lloyds Bank (formerly Lloyds TSB), the Royal Bank of Scotland and HSBC, have offered access to these schemes, but you should check the British Business Bank's current list of accredited lenders.

A number of high street business banks and commercial lenders lend money as part of the current scheme, the up to date list being published by the British Business Bank, and the best way to get the best deal is to shop around.

The Next Step

Now that you have read through the advice above, you might want to put it into practice. Our Grant Eligibility Finder lets you tell us what you need funding for and we will match you with the types of UK grant most likely to accept your application. Try it now →