SME Loans : Is the Government's Small Firm's Loan Guarantee Scheme


Presentation Description

IDBI Bank offers collateral free SME loans under Credit Guarantee Fund Trust for Micro & Small Enterprises set up by Government of India and SIDBI.


Presentation Transcript

Is the Government's Small Firm's Loan Guarantee Scheme the Answer? :

Is the Government's Small Firm's Loan Guarantee Scheme the Answer?


The UK has the most prolific and successful SME business community anywhere in the world. The vast majority of the UK's wealth is generated by SME businesses . However, they pay the highest taxes whilst struggling with the ever growing burden of red tape, regulation and lack of help and information . Large corporations have the luxury of expensive and highly skilled advisors that help them minimise their tax positions, move profits offshore and around complex webs of corporate structures. The government seem to be happy to help the large corporates whilst leaving the SME community to fend for itself . Whilst the small businesses continue to fight for survival the largest of corporations, both here and outside the UK seem to be on a head on collision with disaster. It is not the SME's that have caused us to be in the current climate but they are the ones, along with the general public who are feeling the pain the most . It has become clear in recent months that the government does realise that it is down to the SME community to trade the UK out of its present precarious position and would dearly like to see that happen.


Aside from the regulatory woes we all suffer, the largest hindrance is the lack of financial support. For many years SME's have obtaining funding, often from banks and regularly utilising the government led Small Firm's Loan Guarantee Scheme (SFLG ). The SFLG scheme is a scheme whereby if a bank subscribing to the scheme, which most do, decides to make a business loan of up to £250,000 based on the merits of the application, but there is no security available from the company directors, the SFLG scheme, managed by BERR (formally the DTI) can be used to guarantee 75% of the loan for the bank, with the bank taking the remaining 25% as unsecured . Over recent years there has been an increasing reluctance by the banks to work with the scheme . Lending has moved from 90-100% of requirements to matched funding whereby the business owners are expected to personally inject at least half the requirement into the company as share capital and to not expect to withdraw that money during the life of the SME loans . In more recent times it has become more and more difficult to obtain approval on such loan applications .


In any situation there is a positive for every negative. There has been a dramatic rise in the number of businesses looking at business angel funding options. Growing awareness of this source has led to a large increase in activity in this sector . Even in these hard times there is a large base of both private and corporate investors out there that are prepared to inject capital in return for shares in businesses . In many cases this can be much more beneficial for businesses that could benefit from additional skills and experience rather than just cash . Whilst there will always be a demand and necessity for bank funding it is encouraging to see the SME community increasingly supporting itself with private investors taking interests in other SME businesses and helping them grow . Hopefully this will continue to grow and prosper and with encouragement, the government and banking sector will eventually catch up and get back in the game. They most certainly should . Source:

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