GRAHAM REVIEW OF THE SMALL FIRMS LOAN GUARANTEE

17 Jun 2004 12:15 PM

Teresa Graham, asked by the Chancellor of the Exchequer Gordon Brown and the Secretary of State for Trade and Industry Patricia Hewitt to carry out a review of the Small Firms Loan Guarantee (SFLG), today published the responses to her call for submissions to the review and her interim report on the working of the scheme.

Publishing the document, Ms Graham said:

"I am extremely grateful to all those who have taken the time and energy to respond to the call for submissions published earlier this year. The contributions we have received have been invaluable in supporting our work. In particular, I am grateful to all the lenders who have been so generous with their time.

"The interim report published today alongside those responses sets out our findings on the debt market in the UK, and includes an interesting summary of the statistics showing how the Small Firms Loan Guarantee is currently being used.

"My remit from government was to ensure that SFLG is working effectively and that, through SFLG and other interventions, the Government is doing all that it can to help start-ups and small firms overcome the obstacles that they face when raising finance. My task now is to consider what the objectives and role should be for SFLG in light of the barriers facing SMEs today and to consider how best to focus the scheme where it will make the maximum impact for SMEs".

Notes for Editors

1. The responses to the call for submissions and electronic copies of the interim report, are available on the HM Treasury website from today (www.hm-treasury.gov.uk/graham).

2. The SFLG was introduced to help individuals overcome the problems obtaining the finance to start up new small businesses and also help small established businesses expand.

3. It guarantees loans from banks and other financial institutions for small firms that have viable business proposals but which have tried and failed to get a conventional loan because of lack of security.

4. Loans are available for periods of between two and ten years on sums from 5,000 to 100,000 (250,000 if the business has been trading for more than two years). The SFLG guarantees 75 per cent of the loan. In return for the guarantee, the borrower pays the DTI a premium of 2 per cent a year on the outstanding amount of the loan. The commercial aspects of the loan are matters between the borrower and the lender.

5. Since the scheme's launch in 1981, over 88,000 loans have been guaranteed, worth approximately 3.5 billion in total. Changes to the eligibility criteria made in April 2003 have led to an increase in the use of the scheme of more than 50 per cent. More than 6,000 loans have been guaranteed since April 2003 with a value in excess of 400 million, and the average loan size has now risen to around 69,000.

6. As part of her Review, announced in Bridging the Finance Gap (HM Treasury and Small Business Service, December 2003), Teresa Graham has been asked to work closely with the main SFLG lenders and to examine, and if appropriate make recommendations regarding: * the structure and rules of the SFLG and their appropriateness to the scheme's effective operation; and
* whether the SFLG is proving effective in tackling the financial barriers faced by start-ups and small businesses in the current market.

7. The review will publish its final report in summer 2004.