SFLG isn't Working

The Business Desk has reported today that The Small Firms Loan Guarantee (SFLG) scheme is not working successfully according to a Government minister.

Kirsty McGregor, Chairman and Founder of The Corporate Finance Network commented about this revelation this morning: "Hoorah! Someone at last is recognising this and actually admitting it.  I wrote an article months ago in response to the Chancellor's headlined increase in the funding provided, as I thought it totally missed the point.  The banks had virtually stopped using them, and this move at the Budget was just a political stunt.  And now it looks like I have been proved right.  Although I agree with Alison Small that Venture Finance and some other asset based lenders (ABLs) have increased their usage as the rules have been relaxed.  Once again the ABL market shows it can serve the needs of businesses more ably than the high street banks."

The article from Business Desk (www.thebusinessdesk.com) has been reproduced below:

When asked if the scheme was a success at a fringe event at the Labour Party Conference in Manchester the minister replied, "not yet, no".  The meeting was held under Chatham House rules which prevent the identity of speakers from being disclosed.

The minister, described as being "right in the middle of Whitehall" by a fellow panelist, admitted there were problems with the loan scheme which is designed to help small businesses struggling to secure capital.  She added: "It was a success, we got some elements right but it wasn't able to penetrate the start-ups. We've amended and changed it so it's more relaxed in terms of what banks can do and we've talked to the banks about being more aggressive in marketing it."

Under the scheme the Government guarantees 75% of any loan up to £250,000 to encourage banks to back start-ups and small firms with a turnover of less than £5.6m. The business pays a premium of 2% on the outstanding balance for the service.

Chancellor Alastair Darling boosted this year's pot by 20% to £360m. But according to Capital for Enterprise, the agency that looks after the loans, lending declined in the year to March 31 by £4m to £207m.  In its annual report Capital for Enterprise said this decline was partly down to market conditions which have made lenders and borrowers more risk averse.

But an audience member at yesterday's event said the banks were simply not interested. "I don't think it's working because the banks don't understand it at the retail level," he said. "They're focused on bonuses so they'll sell you insurance policies but when you ask about the SFLG scheme their eyes glaze over."

Research carried out by the asset-based lender Venture Finance found that a third of accountants questioned were not familiar with the scheme. Alison Small, managing director at Venture Finance North, said she was surprised at the figures. "Our own experience of the SFLG has been very positive, with loans worth almost £20m arranged to date."