GOVERNMENT LOAN AND GOVERNMENT SMALL BUSINESS LOAN
Government small business loans are also known as soft loans.
Generally these are loans that are available without the normal security demands placed on borrowers by clearing banks and other commercial lenders. In most cases, soft loans usually allow some concessions to the borrower on either security requirements, or on interest rates charged. Payment of little or no interest may be a condition of the soft loan, and in addition, for some schemes borrowers can sometimes organise payment holidays.
Why a government small business loan or soft loan?
First - a bit of background. Borrowing money from the bank is the most common form of financing available to businesses. In most cases this is through either a loan or an overdraft, or some combination of both. Banks will however demand that the business can demonstrate some form of security against defaulting on its loan payments, and many small businesses are unable to successfully apply to receive loans.
This is where soft loans come in.
Available either directly from the Government, or from local authorities and other bodies, soft loans can help promising businesses that cannot provide such security. They are often considered as a funding scheme of last resort after other avenues of potential financing have been exhausted.
HOW DO I FIND OUT IF I'M ELIGIBLE?
Although each loan scheme will have its own specific criteria, there are a number of key areas that a business will have to satisfy to be eligible for any particular scheme. In virtually all cases the business must identify a specific project, with identified deliverables, for which it is seeking loan funding.
Different schemes will be available to you in different locations - particularly if you are entering or operating in an area of economic deprivation.
The majority of loan schemes favour specific industry types, with a general bias towards industry in manufacturing and services related to manufacturing. The major schemes can be flexible in terms of the industries supported- more so recently in view of the recent foot and mouth crisis.
The role of soft loan schemes is to help boost local and national economic development. Thus each scheme is likely to have been designed with a specific purpose in mind, such as the creation of local jobs.
Loans are far more likely to be available for businesses creating employment and undertaking capital development within the general process of business start up and business growth/development.
As with grants, most businesses will not be eligible for loans unless they can show that they are themselves willing to commit finance to a particular project.
How important are they?
They are very important indeed to the businesses that receive them.
As a measure of how significant soft loans are in the eyes of the Government, consider its response to the knock on effect of foot and mouth disease in the rural economy.
On 9th April 2001, Trade and Industry Secretary Stephen Byers announced that tourism and retail businesses suffering cash flow problems as a result of foot and mouth would be able to apply for funds under the Government's own Small Firms Loan Guarantee Scheme (SFLGS). This means that the Government is now able to underwrite an extra £120m in additional loans to help these businesses.
Byers also announced greater flexibility on the repayment of existing loans. Many rural businesses including holiday accommodation, e.g. B&Bs, holiday cottages, campsites and caravan parks and manufacturers already eligible for loans under this scheme can benefit from greater flexibility for their repayment.
During 1999/00 4,279 loans were guaranteed under the scheme with a cumulative value of £206m.
Schemes across the UK:
There are around 500 soft loans across the UK. You can find out about what you may be eligible for by requesting a search.
The majority are local, but in addition to the Small Firms Loan Guarantee each country offers some sort of centralised support.
- Scotland:The major scheme is the Business Growth Fund, operated by the Scottish Enterprise Network and Highlands and Islands Enterprise. This is accessed through the 22 Local Enterprise Companies (LECs) in Scotland and provides loans of between £20,000 and £100,000 for businesses that can demonstrate commercial viability and growth potential, but who have a gap in their required funding.
On a local level, the 22 LECs may administer their own schemes to encourage business start ups and growth.
- Wales:The Welsh Development Agency provides loan funds predominantly through the Wales Small Loan Fund (WSLF).
WSLF provides 'gap' funding to indigenous Welsh SMEs, who have the ability and potential to expand but lack the necessary investment. The maximum loan value is £50,000.
The fund operates in partnership with Barclays Bank PLC, and if the loan is approved by the WSLF, Barclays are given the opportunity to review the application and to decide whether to lend up to 50% of the agreed amount. The relationship remains with the WSLF at all times, but the partnership allows the WSLF to increase the number of loans it can make.
- Northern Ireland:The Local Enterprise Development Unit (LEDU) and the International Fund for Ireland (IFI) provide financial support to independent Local Enterprise Agencies (LEAs) throughout Northern Ireland.
The loans provided by the LEAs are either known as Seedcorn loans or Enterprise Loan Funds, and help exploit new opportunities for growth by making finance available for new start businesses which otherwise may be unable to access funds.
Who else offers soft loans?
Soft loans can be available from non-government organisations, especially in areas of economic hardship. A number are available from trusts set up with an initial contribution of capital - the capital is used to cycle through businesses: loans are made available and as the repayments are received new loans can be issued.
UK Steel administers the Fast Forward scheme - designed to help small businesses in either the manufacturing or services to manufacturing areas. It is only available in UK steel designated areas of England and Wales has been created primarily to help companies continue to grow their business and create employment opportunities in areas affected by the changes within the steel industry.
For a free initial consultation on how to increase your chances of securing government small business loan, loans from small firms loan guarantee scheme or soft loan contact now