Starting up a company requires a lot of capital and this explains why there are many businesses applying for government business loans in the UK. Lenders, on the other hand, are very strict when selecting businesses which are eligible for these loans. When businesses apply for loans, the UK government or rather the Business Enterprise and Regulatory Reform department, acts as the guarantor for 75% of the loan in the event where the borrower fails to repay the loan.
In order to apply for the government business loan, you need to have an impressive business plan. A good business plan is however not enough.
Turnover and staffing Your annual turnover must be less than 5.6million pounds and the business must less than five years old and your number of employees must be less than 200. The UK government under the SFLG scheme has joined with a number of lenders like banks and other approved lenders to provide loans to small to medium businesses.
The costs of the loan
Collateral You are also required to provide collateral up to a maximum of 25% of the loan amount to the lender.
Fees and rates There are scheme fees which you need to pay to the lender as well as an agreed interest rate. Even though the borrower has got the government guarantee, the lender is not obligated to give you a loan. The lenders make independent decisions in so far as business loan applications are concerned. You are however required to pay 2% of the outstanding loan amount per year to the Department of Trade and Industry as costs of the guarantee.
Who can borrow the business loan?
The lenders want to know the type of business you are doing before they can grant you the loan. They also want to know how the funds will be used. Thus, your business plan must be credible and clear.
Partnerships, limited companies and sole traders
Partnerships, limited companies and sole traders can apply for these loans. However, they must meet the set requirements. The 75% which is guaranteed by the government is specifically for loans ranging from 5000 to 250 000 over a period two to ten years in the form of staged repayments.
Use a professional broker It may be a good idea to use a business loan broker because these professionals have got access to a lot of deals from different lenders. They can arrange the best loan deals which suit your circumstances. UK government business loans are cheaper and have preferential rates and terms although they are difficult to get. This is why it is advisable to go through a professional broker.