SMALL BUSINESS LOANS

The credit crunch hit everyone and for the small business sector it has had a direct effect on the loans available to small businesses. Bank borrowing used to be the main source of loans for small business but, the banks have taken fright and, effectively, shut their doors. The banks now prefer that you factor your debts or take insurance against your debts going bad. Both measures are complicated, more expensive, and leave you less in control of your business than you were before.

If you want a bank loan on any sort of normal terms, you will need to have an excellent credit history, an immaculate and thorough business plan and a cashflow forecast which shows that you can pay off the loan easily.

The Government have tried to help with three different schemes designed to help small businesses find funds.

The Enterprise Finance Guarantee Scheme replaced the Small Firms Loan Guarantee and is a scheme which is supposed to make funding easer to come by. Under the Scheme which runs until March 2011, the Government guarantees the first 75% of the loan. The loan can be used to refinance existing loans, new loans or to convert an overdraft into a loan. Ask your bank or visit the Government website www.berr.gov.uk for more information. The 25% the Government does not cover is still subject to very harsh criteria, so in practice this scheme is not as much help as it initially seems.

The Capital Enterprise Fund and the Working Capital Scheme are other schemes where the Government provides a guarantee to help you get a business loan. Your first contact should be via Business Link whose help will enable you to select the right scheme with the best chance of success (see www.businesslink.gov.uk)

There are fringe lenders who are able to use Pension Funds as an alternative to conventional bank loans. You will need to consult a specialist broker to examine how those plans operate and make sure that in taking a loan in this way, you are not putting your pension at unacceptable risk. For this type of help consult the British Insurance Brokers Association (www.biba.org.uk).

One final source of funding can be the ‘business angel’. These are individuals or firms which specialise in helping small business. They don’t generally make loans, they take a stake in the business. If you’ve seen Dragon’s Den on the television you’ve seen a snapshot of how the ‘angels’ operate. A number of ‘angels’ are available, just Google ‘business angels’ and see what comes up.

Chris Hutchins of the Small Business Advice Network www.sban.co.uk

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