Future looks uncertain for government loan scheme

21/08/07 09:14

Uptake of the government’s flagship small business support service has fallen dramatically and the scheme is unlikely to survive in its current form, it has been claimed.

Official figures show that just £210m was lent through the Small Firms Loan Guarantee (SFLG) scheme last year, compared with £422m in 2005, with the number of loans falling to 2,700 from more than 5,000.

The SFLG scheme offers entrepreneurs and business owners a means of obtaining finance if they have a sound business plan or a small business of less than five years old, but do not have the necessary security to obtain conventional funding.

The scheme is a joint venture between the Department for Business, Enterprise and Regulatory Reform and a number of lenders, whereby the government provides a 75% guarantee on a loan of up to £250,000 provided by the bank.

Modwenna Rees-Mogg, editor-in-chief of Angel News, commented that the sharp fall can most likely be attributed to a key change made by the government 18 months ago, which meant that the banks, rather than the government, would approve the loan applications.

Earlier this year, research by invoice financier Venture Finance found that banks were increasingly making these loans conditional on a personal guarantee.

Rees-Mogg said: “This is a shocking fall. But I think it’s down to the banks being more realistic and better at risk assessment.”

However, as something that is intended to help new ventures off the ground, she added that the future looked uncertain for the scheme in its current form.

“I don’t think the scheme has a future in its current format, but the government must step up to the table and work out with banks, equity houses and big corporates what the country needs to do to support enterprise.”

A spokesman for small-business lobby group the Forum of Private Business, added: “FPB members tell us that the banks don't like it. Smaller firms find it ponderous and a loan takes a long time to go through.”

However, Rees-Mogg added that investment in high-risk ventures was essential and said that corporate venturing, by companies such as Oracle, was a good way of supporting start-ups.